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U.S. Milk Climbs as Fonterra Halt Seen Spurring Demand Elsewhere

August 5, 2013

Prices increase after an import ban by China and Russia on New Zealand’s largest dairy exporter stokes speculation buyers will seek limited supplies elsewhere.

Alex Pashley

Milk rose the most in almost three weeks in Chicago after an import ban by China and Russia on New Zealand’s largest dairy exporter, Fonterra Cooperative Ltd., stoked speculation buyers will seek limited supplies elsewhere.

The ban was imposed on some milk powder after Fonterra said the product may contain a bacterium that causes botulism. Global milk supplies will remain tight until New Zealand’s production rebounds in October, farm organization LTO-Nederland said in a report on its website last week.

"This will probably drive prices higher", said Alicia Forry, an analyst at Canaccord Genuity Ltd. in London. "In the short term it will cause demand to shift to other areas around the globe that might be able to step in and provide product."

Class III milk futures for September delivery rose 37 cents, or 2 percent, to $18.79 per 100 pounds by 4:43 a.m. on the Chicago Mercantile Exchange, the biggest gain for that contract since July 16. Class III milk, which is used to make cheese, climbed 1 percent this year. Trading was 88 percent of the three-month average.

China is New Zealand’s largest export market for dairy and a temporary blockage may see European and American companies plug the shortfall, Forry said. The New Zealand dollar weakened to as low as 76.93 U.S. cents, the lowest since July 8.

Fonterra Chief Executive Office Theo Spierings apologized in Beijing today and said China will lift restrictions on its products as soon as the company provides more information. The ban currently affects whey protein for milk formula and not all milk products.

"If China isn’t buying New Zealand’s milk, it’s still on the market" and could depress the price, said Nicola Mallard, analyst at Investec Securities Ltd. in London.

There are no reports of illness related to consumption of the affected products, Fonterra said.

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