Asian demand prompts 41 percent surge in the past three months

WELLINGTON, New Zealand - Whole milk powder prices surged to a record amid continued strong demand from China and concerns that higher input and feed costs may curb supply.

Milk powder gained 15 percent from two weeks earlier to $4,958 a ton, the highest for the near-term contract since auctions began in July 2008, according to results published on Wednesday by Fonterra Cooperative Group Ltd, the world's largest dairy exporter.

Prices have surged 41 percent in the past three months, buoyed by strong demand from Asian buyers and concerns dry weather in New Zealand may curb supply. The gain adds to signs the country may rely on higher commodity prices to bolster the recovery from last week's 6.3-magnitude Christchurch earthquake that caused an estimated NZ$15 billion ($11 billion) in damage. Food prices climbed to a record last month, according to a 55-item basket tracked by the United Nations.

"Demand is outstripping supply at the moment and there's still some risks around what the supply situation is going to do this coming year," James Shortall, a rural economist at ASB Bank Ltd in Auckland, said on Wednesday. "The increases we've seen in other commodity prices, grains and corn, have a big impact on the big producing countries."

Corn futures have gained 35 percent in the past three months on the Chicago Board of Trade. Major producers, including Europe and the United States, may be less likely to increase milk production as higher input and feed prices tighten profit margins, Shortall said.

New Zealand's export prices climbed for a sixth straight month to a record in February, with milk powder rising more than most, according to the ANZ Commodity Price Index.

"Through this year, we're probably going to be looking at a very strong payout for the 2012 season," Shortall said. "It will be in that season that the New Zealand economy starts to feel the full benefit of higher commodity prices."

Whole milk powder for delivery from June through August rose 12.3 percent, Fonterra said. Powder for shipment from September through November increased 2.6 percent. Across all contracts, prices gained 9.6 percent.

Fonterra, which accounts for about 40 percent of the global trade in dairy products, sells whole and skim-milk powder and dried milk fat at its fortnightly Global DairyTrade auctions. It offers one-month contracts with delivery starting two months after the sale, and two three-month contracts with delivery starting three and six months later.

Bloomberg News

(China Daily 03/03/2011 page17)