Dairy Prices May Make ‘Slow, Gradual’ Recovery, Fonterra Says

By Gavin Evans

Sept. 23 (Bloomberg) -- Global dairy prices may make a “slow, gradual” recovery in the coming year, lead by improving demand in Asia, the Middle East and India, Fonterra Cooperative Group Ltd. said today.

A recent surge in whole milk powder prices is unlikely to be matched by all products and the company is cautious on the increases to expect from here, Chief Executive Officer Andrew Ferrier said today. Butter and skim milk stockpiles in the U.S. and Europe may also temper the pace of further gains, he said.

“We expect over time an improvement from last year,” Ferrier told reporters at the company’s Auckland headquarters. “Overall a slow, gradual rise. I wouldn’t put in the bank yet the very, very high level of prices achieved recently, at least in whole milk powder, as applying across the board.”

Fonterra, the world’s largest exporter of milk powder, butter and cheese, yesterday raised the price it expects to pay its 10,400 New Zealand farmers by 12 percent, citing a strong recovery in milk powder prices from the five-year low reached in July. Asia is showing the biggest rebound.

That “will be the strongest pull and that’s really across the board of Asia, across Southeast Asia and China,” Ferrier said today. “The Middle East we expect will come along and to a lesser extent India.”

Fonterra exports most of New Zealand’s milk production and makes up almost 40 percent of the global trade in dairy products. It expects to pay suppliers NZ$5.10 ($3.71) for each kilogram of milk solids they sell in the year through May 31, 2 percent less than last season and down from the record NZ$7.90 paid a year earlier amid surging global prices.

Forecast Production

A cold wet, winter means production so far this season is running very similar to last year’s record output, Chairman Henry van der Heyden said. Some farmers are running fewer stocks and it is too early to accurately forecast full-year output.

“It is probably going to depend on the weather,” he said. “The expectation today is that it will probably be very similar to where it was last year.”

Fonterra collected a record 1,281 million kilograms of milk solids in the year ended May 31. Output jumped 7 percent from a year ago when drought slashed output in many of the country’s biggest dairy producing regions.

The company earlier reported an 8 percent fall in sales in to NZ$16.04 billion in the year ended July 31. Profit before interest, tax and one-time items climbed 38 percent to NZ$890 million.

Record sales in the fourth-quarter and long-term contracts helped shield commodity earnings from the worst of the price slump, the company said. Earnings from consumer products in Australia, New Zealand and Asia and the Middle East all posted strong gains, Fonterra said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net