Milk Prices Fall for Second Month on Increased Supply - Bloomberg - Gavin Evans - ‎Feb 2, 2010‎

By Gavin Evans

Feb. 3 (Bloomberg) -- Milk powder prices fell for a second month as production in Europe and the U.S. increased and concerns eased that drought would reduce global supplies, Fonterra Cooperative Group Ltd. said today.

Whole milk powder for April delivery declined 2.5 percent to $3,200 a metric ton, according to data on the Auckland-based company’s GlobalDairyTradeWeb site. Prices fell for the first time in six months in January, having reached a 16-month high in December. The April contract is up 74 percent from a year ago.

Fonterra is the world’s biggest dairy exporter, accounting for about 40 percent of the global trade in butter, milk powder and cheese. Powder prices have climbed from a five-year low in July as food makers increased inventories as the global economic outlook improved.

“We’ve just been through a period of supply re-stocking which appears to have come to an end,” GlobalDairyTrade Manager Paul Grave said in a telephone interview from Auckland. The European and U.S. “season is just about to come into full swing. Potentially there will be more product available into the marketplace.”

Fonterra’s Internet-based auctions offer a one-month contract with delivery starting two months after the sale, and two three-month contracts with delivery starting three and six months later.

Milk powder for delivery from May through July rose 1.6 percent to $3,308 a ton, Fonterra said. Powder for shipment from August through October dropped 6.7 percent to $3,287 a ton.

Improved Confidence

Fonterra’s later-dated contract has fallen $429 a ton since December. The decline probably reflects improving confidence in future production and greater clarity around output levels in New Zealand and Australia, Grave said.

“There was a bit of a premium previously,” he said. “There were some supply concerns which probably have eased a little now, although Australian supply is down a little and some parts of New Zealand are still in drought.”

Dry weather will cut Fonterra’s output about 0.8 percent in the year ending May 31, the company said Jan. 8. Australian production in the five months through November was 5.4 percent less than a year earlier, Dairy Australia said Jan. 21.

Across all contracts, average prices declined 1.6 percent to $3,256 a ton, a sign the market is “coming into a reasonable sort of balance,” Grave said.

Prices will likely “bounce around” in coming months as buyers adjust to demand from their customers and the production outlook, he said.

“The key is consumer demand, that’s the unknown factor,” Grave said. “There are positive signs out there, but it relies on sustained economic growth to be maintained. And that’s the key really.”