Fonterra’s Spierings Sees Dairy Prices Rising on Chinese Demand

14:57PM Aug 27, 2014

"We have factored in an expected recovery," says the head of the world’s biggest dairy exporter.

By Matthew Brockett

Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, expects global milk prices to recover from their slump as China re-enters the market, Chief Executive Officer Theo Spierings said.

"We have factored in an expected recovery," Spierings said in an interview today after the Auckland-based company unexpectedly maintained its forecast payout to New Zealand farmers at NZ$6 a kilogram of milk solids for the current season. "I have no reason at this point in time to believe the milk price will sit significantly under the average of the last five years" of around NZ$6 to NZ$6.5 a kilogram, he said.

Fonterra cut its forecast in late July from an initial estimate of NZ$7, and Bank of New Zealand Ltd. economists expected a further reduction today after a 44 percent plunge in whole milk powder prices since February. China, the biggest customer for New Zealand dairy products, has been buying less after building up inventories earlier in 2014.

Spierings said Russia’s ban on some dairy imports was a risk and could cause some market disruption. Russia has halted purchases of an array of food products including dairy items from the EU, U.S., Canada, Australia and Norway in retaliation for sanctions over its treatment of Ukraine.

Still, stocks in China were returning to more normal levels and "you can clearly see that there is still strong consumer growth," Spierings said. "Short-term hiccups with inventories can cause fluctuations in price, but I get concerned when demand at a consumer level goes down."

Whole milk powder prices rose for the first time in two months at the most recent GlobalDairyTrade auction Aug. 19.

China is "really coming back to the market," Spierings said. "They went from levels below 20 percent to over 30 percent of the volume, and we had significant volume."