Auction prices for milk beat the odds

Predictions that wholemilk prices on Fonterra's online auction would stumble this month after a meteoric rise have proved unfounded. with a 5.7 per cent average increase pointing to a firming market, say analysts.

Fonterra's internet-based sales platform finished its October event yesterday with an average price across all contracts and contract periods for wholemilk powder of US$3022 per tonne, up US$164 per tonne on the September auction.

The average price over the previous two months' auctions rose more than 50 per cent, reflecting international market volatility and leading to speculation the October average price would retreat, perhaps sharply. Prices yesterday ranged from US$2825 per tonne to $3095 per tonne, Fonterra said.

Fonterra Global Trade managing director Kelvin Wickham said it was expected that prices would need to consolidate after the surges.

"We've seen a rebalancing in the market and we see market fundamentals supporting prices around their current levels," he said.

NZX analyst Phil van Polanen said the price consolidation indicated international buyers were aware the Oceania dairying region no longer had stockpiles. He believed the more moderate increase was supply-driven rather than a sign of returning demand. However, it showed a bit of confidence returning, he said.

Prices should hold as New Zealand production this season looked only likely to equal, or end slightly below, 2006-07 pre-drought levels and US and EU markets "have the spot markets to themselves", van Polanen said.

Rabobank senior analyst Hayley Moynihan said the auction result showed prices were firming.

US and EU inventories were starting to reduce and higher wholemilk powder prices would make this a more attractive product to make for overseas processors, putting a cap on the rapid rate of price rises.

Fonterra's Wickham said market uncertainty remained, given that many economies were only beginning to recover from recession.