Dairy prices stabilising

Longer term contract prices are climbing while shorter term contracts have been moving down, due to the increased supply after a strong milk production season in 2011-12. Milk production in New Zealand for the 2011-12 season is expected to be up 10% while Australian production is thought to be around 4% higher, largely due to favourable weather conditions in both countries. Fonterra believes that global supply and demand may start to rebalance later this year.

In terms of prices, traders and handlers believe that the bottom has been reached. Many are indicating that prices are starting to firm as suppliers look forward to the new milk production season. There are international buyers hunting the Oceania spot market for supplies but many have been unsuccessful as they are few uncommitted supplies.

The Oceania butter markets are firm. Prices have increased over the last fortnight despite production being at seasonally low levels. The extra butter produced because of the increased milk flow through the 2011-12 season has been easily absorbed in the market and there is limited uncommitted stocks. Butter prices increased U$50/tonne last week to settle on US$3000/tonne.

The powder markets are firm in the Oceania region. Powder production is at seasonally low levels so inventoried stock is helping fulfil current commitments. Uncommitted volumes are limited, which is helping drive international buyer interest seeing their wants are not met. Most of the butter and powder facilities are in winter shutdown mode and some are performing maintenance where necessary. Skim milk powder prices are firm having increased US$125/tonne to US$2925/tonne. Whole milk powder prices have also lifted by US$100/tonne to US$2850/tonne.

The cheddar market remains flat however there is a firming undertone developing. With limited production at this time of year, stocks are generally being used for contractual purposes with little being left over for the spot market. Buyers who are inquiring on the spot market are finding it difficult to obtain supplies. Prices were unchanged on US$3600/tonne last week, but this was still 19% lower than prices the same time last year.