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Milk Powder Climbs to Record as NZ Drought Curbs Supply

By Phoebe Sedgman and Tracy Withers

Whole milk powder climbed to a record as New Zealand’s most widespread drought in at least 30 years curbs supply in the world’s largest exporter, according to Fonterra Cooperative Group Ltd. (FCG).

Powder for next month’s (May) delivery gained 22.8%t, the biggest advance since Sept. 1, 2010, according to a trade-weighted index on GlobalDairyTrade. The near-term contract for New Zealand product rose to $5,313 a metric ton (MT). The previous record was $4,958 on March 1, 2011.

A drought declared across the entire North Island including Waikato province, the country’s biggest milk producer, may cost NZ$2 billion ($1.7 billion) as dry conditions threaten economic growth, the government estimates. Growth in milk volumes will probably slow to 1% this year after expanding 6% at the start of the season as the drought hurts production, Fonterra chief executive officer Theo Spierings recently said.
New Zealand’s central bank held the cash rate at a record low on March 14 and cited concerns that dry conditions may “substantially reduce economic output.” Dairy exports last year made up 25% of all merchandise exports abroad.

Dairy-production may slow or be little changed in the year to June 30 after rising 11% a year earlier, according to ASB Bank Ltd. Milk supplies may be as much as 15-20% below a year earlier through the third quarter, Rabobank International said. About 61% of the country’s milk is produced on the North Island, Rabobank estimates.

“Even if good quantities of rains fall, it will take a long time for pasture covers to rebuild,” NZX Agrifax said. “We are unlikely to see much of a resurge in milk production, which is already trending well below last season.”

The government is also watching parts of the South Island that are very dry, Minister for Primary Industries Nathan Guy said.
Fonterra which accounts for about 40% of the global trade in dairy products, sells whole, skim and butter-milk powder, dried-milk fat, lactose, butter, cheese and casein at its GlobalDairyTrade auctions. The company offers monthly contracts with delivery starting from two months after the sale. Casein is a protein found in milk.

Whole-milk powder for June delivery rose 25% while prices across all five product contracts out to September rose 21%, Fonterra said.
In other auctions, prices for May delivery of milk fat, butter, casein, cheddar, skim and butter-milk powder also increased. Lactose and milk protein concentrate weren’t offered (Bloomberg).

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