By Wendy Pugh

Milk powder prices surged 25 percent at auction after slumping for the previous four months, according to Fonterra Cooperative Group Ltd., the world’s largest dairy exporter.

Whole milk powder for November delivery gained to $3,624 a metric ton, based on a trade-weighted price index calculated by the company after its latest GlobalDairyTrade auction yesterday, according to a website statement today. The price remains below a 21-month high of $4,092 a ton reached in April.

Fonterra, based in Auckland, accounts for about 40 percent of global trade in butter, milk powder and cheese, selling $12 billion of products a year in 140 countries. The company last month maintained a forecast of payments to farmers supplying its milk on signs that global prices may strengthen.

The result of the latest auction “appeared to indicate a firmer tone has returned to the market over the last month,” Fonterra said, without giving further detail. The sales will now be held twice a month, with the next one on Sept. 15, it said.

“Having two events a month will provide a lot more visibility when it comes to assessing the market direction,” Paul Grave, manager of GlobalDairyTrade, said in the statement.

Fonterra, owned by the farmers who supply its milk, on Aug. 20 forecast payments to farmers at NZ$6.90 ($4.91) to NZ$7.10 per kilogram of milk solids for the year to May 31, 2011.

Fonterra sells whole- and skim-milk powder and dried-milk fat at the Internet-based auctions, offering one-month contracts with delivery starting two months after a sale, and two three- month contracts with delivery from three and six months later.

Whole milk powder for delivery in December through February climbed 18 percent, Fonterra said. Powder for shipment from March through May rose 14 percent.

NZX Ltd., which operates New Zealand’s stock exchange, will begin trading a whole-milk-powder futures contract on Oct. 8 that uses the auction price as the reference for cash settlement, Fonterra said.

Source: Bloomberg

http://www.bloomberg.com/news/2010-09-01/whole-milk-powder-prices-for-november-rise-to-3-624-a-ton-fonterra-says.html