By Gavin Evans

Milk powder prices eased for a second month as drought eased in New Zealand and supplies increased in Europe and the U.S., Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said.

Whole milk powder for August delivery fell 0.2 percent to $4,019 a metric ton, in the Auckland-based company’s latest GlobalDairyTrade auction. It was the second decline and followed a 24 percent surge in prices to $4,092 a ton, a 21-month high, at the company’s April auction.

Fonterra accounts for about 40 percent of the global trade in butter, milk powder and cheese, selling $12 billion of product in 140 countries. The company, owned by the New Zealand farmers who supply its milk, last week said prices this season may rise 8.2 percent as demand strengthens and domestic output recovers after drought in much of the country’s North Island.

“Drought is probably not a major factor” in international prices now, Paul Grave, manager of Fonterra’s GlobalDairyTrade unit, said in a telephone interview today. Europe is “just getting into the peak of their production season now, and the U.S. has produced a little bit more milk of recent times.”

Dairying is New Zealand’s biggest export earner, accounting for 23 percent of the nation’s trade receipts in the year ended April 30. Prices climbed about 78 percent the past year according to a Commonwealth Bank of Australia index after farmers in Europe and the U.S. reduced herds and production lagged in Australia and New Zealand.

Output in Australia, the second-largest exporter after New Zealand, is down about 5 percent this season, industry group Dairy Australia said on May 12. U.S. milk production in April rose 1.5 percent from a year earlier as per-cow yields improved, the Department of Agriculture said May 18.

Fonterra sells whole and skim milk powder and dried milk fat at its monthly 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.

Prices across all products and maturities fell 3.5 percent, the company said, citing a volume-weighted index. About $138 million of product was sold.

The biggest declines were in later periods, reflecting “good” short-term demand and tight supplies, particularly of milk fat, Grave said.

Still, the debt crisis in Europe the past month has reduced confidence in the outlook and made buyers less keen to commit to longer-term purchases, he said. The weaker euro had also altered price expectations in some regions.

“That makes European competitors’ product more attractive on the world market,” he said.

Whole milk powder for delivery from September through November fell 2.4 percent to $3,776 a ton, Fonterra said. Powder for shipment from December through February slumped 6.7 percent to $3,646 a ton.

Skim milk powder for August delivery fell 2.6 percent to $3,588 a ton. Dried milk fat rose for a third month, climbing 11 percent to $6,169 a ton.

Source: Bloomberg News (New Zealand)

http://www.businessweek.com/news/2010-06-01/milk-powder-declines-for-second-month-fonterra-says-update1-.html