Fonterra sees 'green shoots' as global dairy prices struggle

Fonterra says customer demand for its whole milkpowder has picked up, but buyers on its regular internet auctions are being cautious.

The big dairy cooperative said that its July auction in the early hours of today saw continued "market caution" around pricing.

"We saw increased customer demand, but they remain wary about paying too much in an uncertain environment," said Kelvin Wickham, managing director of Fonterra's global trade arm.

Buyers were taking a conservative approach "as they try to second guess when the inevitable increase in demand - and consequently prices - will occur," Wickham said in a statement.

The average price achieved across all contracts and contract periods for whole milkpowder (WMP) was US$1829/tonne, down $57/tonne (or 3 per cent) from the June auction.

Wickham said the global dairy market was still in a re-balancing phase.

"On the one hand milk supply globally is declining sharply, but, on the other hand, recessionary conditions mean consumers have reduced their purchases of dairy products.

"Right now our customers are attempting to predict exactly when decreasing supply or increasing consumer demand will result in an inevitable firming of prices."

The short-term price, for shipments in September fell 8 per cent to US$1841/tonne. Further out, for shipment in October-December, prices at auction fell 4.6 per cent to US$1806/tonne.

But there was a brighter note, with the price on shipments between January and March next year lifting 1.9 per cent to US$1849/tonne.

At last month's auction, the longer-range price fell 14.2 per cent to $1814/tonne for December-February shipping.

In June, the average price at auction fell 12 per cent, overall, after slipping more than 4 per cent in May.

The latest auction has revived speculation Fonterra's forecast payout for the current milking season could be cut from $4.55/kg milksolids.

This payout figure is down 12 per cent on last season, with Fonterra blaming weak demand. It has also criticised renewed export subsidies being paid by the United States and European Union for dairy produce.

Blue Read, chairman of Fonterra's shareholders' council, told Radio New Zealand there were "a fair number" of the cooperative's 10,500 farmers exposed to losses at the $4.55 payout level.

If the forecast payout fell further, "I don't think there's much insulation left", he said.

The next Fonterra auction will be held on August 3.

- NZPA