The price of whole milk powder jumped 24.2% in Fonterra’s latest monthly internet auction, with the weighted average price of US$2,858 per tonne bringing the price back to a level not seen since October 2008 reports interest.co. Fonterra Global Trade Managing Director Kevin Wickham said the lift in prices was higher than expected. “However, we anticipated whole milk powder prices would lead the recovery because of low global inventories and firming demand,” Wickham said.

The inclusion of 2,000 tonnes of whole milk powder from Australia in the auction (up from 1,000 tonnes in August) had little downward impact on prices. New Zealand quantities of 19,000 tonnes were the same as in August and July. “With demand returning, our customers have more confidence in refilling their supply chains. But it remains to be seen whether demand has returned to sustainable growth,” Wickham said.

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Fonterra is planning to open its global dairy trade auction to other companies but will not say when reports The Dom Post. Fonterra US president and chief operating officer Martin Bates said there was a lot of interest about how other dairy companies could benefit from using the auction and many were watching the auctions closely.

Brad Miller, vice-president of CRA International, the firm that set up and runs the auction for Fonterra, said it would be good for the marketplace to have other sellers trading their product on Fonterra’s Global Dairy Trade system.Fonterra started auctioning whole milk powder in July last year. The process has been heavily criticised and blamed for deflating the international milk price.

The auction was instigated at the same time that international demand for milk fell away. However, John Wilson, marketing and industry affairs senior vice-president at Dairy Farmers of America (DFA), said the price was what the market was willing to pay and it was difficult to point fingers at any one thing that caused the price to drop.

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Prices in Fonterra’s monthly online milk powder auction jumped almost 26 percent with the dairy co-operative pointing to strengthening demand in albeit volatile global markets. Fonterra said today the average August price achieved across all contracts and contract periods for whole milk powder was US$2,301 per tonne reports The Dom Post. This was US$472 per tonne higher than in Fonterra’s July auction. Prices ranged from US$2,235 per tonne to US$2,530 per tonne. Overall average prices rose 25.8 percent.

Nigel Kuzemko, the commercial and strategic director for Fonterra trade and operations, said the higher prices reflected a recent firming in market sentiment. However, the international dairy market remained volatile with supply and demand going through a rebalancing phase.”We are seeing signs of strengthening demand and prices, and that’s encouraging, but the market remains dynamic with trends difficult to forecast,” said Kuzemko. The August auction included 1,000 tonnes of whole milk powder from Fonterra’s Australian operations for the first time.

Fonterra’s monthly online milk powder auction Global Dairy Trade is being made the scapegoat by producers who are suffering price declines because of the global recession, not because of the auction, the dairy co-operative says. The Business Herald yesterday reported criticism of Global Dairy Trade from a number of Fonterra’s international rivals who contend the auction has exacerbated falls in international milk powder prices and provoked protectionist policies in the European Union and the United States.

“Clearly we do not concur with the view that Global Dairy Trade is undermining prices,” Fonterra’s director of portfolio optimisation, Nigel Kuzemko, said yesterday. “The simple fact of the matter is there’s only two people who affect the price – that’s the buyer and the seller of a product. The mechanism by which they interact is completely irrelevant. If Global Dairy Trade hadn’t been around, prices would have fallen just the same.” Kuzemko said the criticism, which has come from overseas rivals including Denmark’s Arla Foods, France’s Lactalis and Australia’s Murray Goulburn, was “an indicator of change” in the global industry. “Global Dairy Trade came around when there was a lot of stress in the economic environment. Clearly we’ve got a global recession which is making things tough for all producers around the world.”

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Dairy juggernaut Fonterra is being blamed in Europe for contributing to the reintroduction of EU and US protectionist dairy measures.The criticism is over Fonterra’s online monthly global wholemilk powder auction system, Global Dairy Trade. It was introduced 11 months ago as world dairy prices began a downward march. Almost every month since, the average auction price has fallen. This month wholemilk prices were at a five-year low and 58% less than a year ago. The critics say the auction price has become a buyer reference for future pricing, ensuring world prices for whole milk powder have fallen faster and harder than necessary – even allowing for world recession reports The NZ Herald. They are particularly critical of each auction starting bids at 15% below the closing price of the last auction.

Last week the European Commission proposed extending intervention buying of butter and skim-milk powder for storage until the end of February and, if required, until 2011.The EU resumed subsidies and an intervention programme in January. Shortly after, Fonterra announced a third reduction in its milk payout forecast to farmers for the 2008-09 season, partly blaming the EU move. As the market feared, the US responded, saying it would also reintroduce subsidies.

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Climbing kiwi and tanking commodity prices putting huge pressure on farmers Four months ago there was cause for optimism in the dairy sector. After a steep fall – in line with every other market in late 2008 – dairy prices appeared to have hit bottom. They bounced up twice – in March and April. The dollar was averaging US55c and expectations were for more falls. There was some genuine hope that the nation might skip the more extreme depths of the global downturn – saved, in that great Kiwi tradition, by the cockies. But since then both the currency and the commodity price – crucial for Fonterra, dairy farmers and the whole economy – have turned for the worse reports the NZ Herald.

The US and Europe have offered their dairy farmers emergency subsidies, a move which puts immediate downward pressure on global prices as seen by the latest globaldairytade auction prices. Meanwhile the kiwi dollar continues to be lumped in with the aussie as a commodity currency and has roared away as a safe haven for those wary of the battered greenback. The hard commodities that Australia exports, like copper and aluminum, are still in a rally. Dairy is not. Fonterra’s forecast payout for this year – $4.55 per kg of milksolids – already looks grim to those farmers up to their neck in debt after converting to dairy or expanding operations in the last few years of the property boom.

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With a fall in WMP prices at the latest auction and the recent rise in the currency, Fonterra appear to have been hit by a double whammy.  In NZ$ terms the drop equates to nearly 20% and is a real blow to an early recovery for dairy prices.

American dairy subsidies appear to have spooked the market, with Fonterra’s latest monthly online auction showing a big drop in whole milk powder prices. Analysts said last month’s decision by the US Government to re-introduce dairy subsidies along with fears of a European retaliation was the most likely reason for the fall reports The Dom Post. The average auction price across all products and contract periods for whole milk powder was US$1886 (NZ$2884) a tonne 12% lower than in the May auction. The longer contract periods were down the most with prices for product to be shipped between December and February dropping 14.2%, September to November down 12.4% and up until August down 7.7 %. Fonterra sells about 10% of its whole milk powder via the online auctions, with the prices achieved seen as a useful barometer for dairy prices across the board.

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This comment from Fonterra’s Kelvin Wickham should be read by some processors/exporters in the Meat industry. “The move towards more open and transparent commodity markets is inescapable.” Agridata was set up to get more transparent  meat prices out to farmers, but its been a battle to get some of the industry to come on board. Obviously Fonterra think its important for farmers!!

Fonterra plans to double commodity sales on its internet platform, globalDairyTrade, where it has regular independently run auctions reports The NZ Herald. “We plan to increase volumes and introduce new products,” said Kelvin Wickham, managing director of the globalDairyTrade operation, which sells about $1 billion of whole milkpowder on the platform annually. At present the company sells only about 10% of its product online – all full cream milkpowder – and Wickham said the expansion of internet sales would deepen the market. It plans to boost this to 20 % of its NZ-sourced product.

Wickham said Fonterra was also looking for other international dairy companies to join the auctions. “We’d welcome other sellers who want to join in the march to a more stable, less risky future,” he said. “The move towards more open and transparent commodity markets is inescapable.” Wickham said commodity markets were facing their most volatile period in 50 years. “Prices have soared and slumped. Demand has waxed and waned,” he said. “Farmers have gone from confidence to concern.

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The world trade market continues to show its volatility with Fonterra’s latest WMP auction results in its globaldairytrade auction last night. These results coupled with the recent strenghtening of the currency, should warn dairy farmers not to bank that last months dairy cheque increase just yet. Henry van der Hayden warned suppliers that the final result and next years payout will be heavily influenced by the currency. The continuing articles that warn that some dairy operators have debt levels that are unsustainable and rising costs of some operators are further signs that the next few years will be difficult for some.

The average price for all products was $2144 US$ which is a 4.1% negative change from the previous event ( at levels last seen from 2004-2006). If we factor in the NZ exchange rate increase this downwood price drop ballons to a 9.7  % drop. Whilst many felt the market had bottomed this result shows that the market may not be ready to lift just yet, especially with international stockpiles to be sold.

Is the glass half full or half empty is the phrase that sums up the reporting of the latest globaldairytrade auction result. Whilst in US$ the prices are up when the appreciating currency is allowed for, the price in NZ $ is back. However I am  one of the analysts that will focus on increased demand for the product, which has seen a rise in value which may show we have reached the bottom of the dairy commodity cycle. I’m sure all dairy farmers will be pleased with this result and will be hopeful of more to come.

The average price for whole milk powder in Fonterra’s latest globalDairy Trade internet auction rose 3.5% in April from March to US$2,235/tonne. This was the second consecutive month in which the average price rose, following a 16.6% rise in March from February, up from a low of US$1,851/tonne. (Update 1 to include comments from Fonterra.) The biggest average price rise in the latest auction came for milk powder for delivery between June and September, up 4.8% to US$2,322/tonne. The price for milk powder for deliveries between October and December rose 4.6% to US$2,254 and the price for June deliveries was up 0.9% to US$2,133.

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