5 Nov 2009

Lower EU subsidies pushing up dairy prices

9:07 pm on 5 November 2009

Fonterra says the reduction in subsidies paid to farmers in the European Union has helped to stimulate a price recovery in the global dairy market.

The average wholemilk powder price has lifted by a further 13.7% to $US3437 a tonne in Fonterra's latest on-line auction.

And a second product, anhydrous milk fat, included in the auction for the first time, also fetched a higher than expected price.

Fonterra says the price increases reflect the tight supply for dairy commodities and the strong demand from customers arising from that.

The co-operative was critical of the EU and the United States reintroducing export subsidies when prices dropped over the past year. But the EU has watered down its support measures again,

and Fonterra's commercial and strategy director, Nigel Kuzemko, says that's helping to stabilise the international market.

Hopes of further lift in milk payout forecast

Farmers are hoping for a further lift in their forecast milk payout as a result of the continuing rise in dairy commodity prices.

The price has climbed almost 88% over the last four months.

Mr Kuzemko says it's unclear how much higher the price will go in a market continuing to show signs of volatility, but Federated Farmers dairy section head Lachlan McKenzie believes the upward trend will continue.

Westpac agribusiness economist Doug Steel says the latest price rise is almost double the increase he was predicting and thinks Fonterra is likely to lift its forecast payout by 50 or 60 cents from the current level of $5.10 per kg of milk solids.