Bloomberg News

Global Dairy Prices Nearing Bottom of Slump, Fonterra CEO Says

May 22, 2012

Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said prices will start recovering from the lowest in two years when the company’s next milking season starts in August.

“We are seeing the bottom,” Chief Executive Officer Theo Spierings said by telephone from Auckland today. Prices had weakened in recent months after an “emotional reaction” to earlier high costs and excess supply, he said.

Fonterra plans to pay its farmer suppliers 9 percent less next year after the price slump. The company will pay its 11,000 shareholders NZ$5.50 ($4.21) a kilogram of milk solids in the year ending May 31, 2013, it said in a statement today. That compares with the current year’s payout, which was cut by 30 cents to NZ$6.05 a kilogram.

Whole-milk powder at the company’s GlobalDairyTrade auctions tumbled 25 percent in two months to May 15 after mild weather and record prices spurred farmers to boost output. That helped push global food costs lower for the first time this year in April, with dairy prices dropping to the cheapest since October 2009, according to the United Nations’ Food & Agriculture Organization. New Zealand’s dollar weakened to a five-month low in May as powder prices fell to the weakest since August 2009.

“There’s a lot of milk out there and prices have softened,” Chairman Henry van der Heyden said in the statement. “Supply and demand should move more into balance later in 2012 which may help ease the downward pressure on prices.”

Price Recovery

While recovery is expected, an overhang of supply may see further decreases in some auction prices before August, Spierings said. That won’t lead to revised forecasts, he said.

The New Zealand dollar traded at 76.56 U.S. cents at 5 p.m., from 76.54 cents before this morning’s report. The next season’s forecast was 30 cents higher than Bank of New Zealand’s expectation, currency strategist Mike Jones said in an e-mail.

Fonterra previously lowered its forecast payout in March, citing falling commodity prices and a stronger local currency that was then trading near 82 cents. It rose as high as 83.2 cents in mid-April.

“If the dollar’s very strong, then exporting becomes difficult,” Spierings said. “I’m not pleading for an extremely low dollar but I think 83 was on the high side. Where we are now is more rational.”

Fonterra kept its forecast for profit after tax in the year ending May 31 at NZ$0.40 to NZ$0.50 a share.

At an auction last week, July-delivery powder fell 9.6 percent from the previous sale, Fonterra’s trade-weighted price index shows. The near-term contract fell for the 11th straight sale to $2,488 a ton. Prices reached an all-time high of $4,958 in March last year.

Fonterra, which accounts for about 40 percent of the global trade in dairy products, said in March milk collections were up 10 percent on the same period in 2011. The company processes 95 percent of New Zealand’s milk and generates more than 20 percent of the nation’s export earnings, according to its website.

To contact the reporters on this story: Phoebe Sedgman in Melbourne at; Chris Bourke in Wellington at

To contact the editor responsible for this story: James Poole at

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