MercoPress. South Atlantic News Agency

Milk prices soar 21%, highest in two years pushed by Australasian squeeze

Fonterra is the world’s leading dairy exporter

Fonterra, the world's biggest dairy exporter, has said that a seasonal squeeze on Australasian milk supplies is behind a 21% jump in prices to their highest in nearly two years.

The New Zealand co-operative said that whole milk powder prices at its monthly globalDairyTrade internet auction soared 868 USD from March to an average of 3,969 USD a ton.

The rise - which took the average price to its highest since July 2008, when the commodities bubble was beginning to burst – was also noted in other products.

Skim milk powder prices rocketed 26% to 3,672 USD a ton.

Whole milk powder prices also completed the reversal of their normal pattern, in which further-ahead contracts hold a premium over short-term lots, factoring in storage costs and an allowance for market upsets.

The near-term, June contract, for June delivery, jumped 24% to 4,092 USD a ton, overtaking the middle lot, for delivery between July and September, and increased its lead over the furthest-away October-December contract.

This pattern of trading, so-called backwardation, is typically seen in farm commodity markets in times of short-term shortages. It was particularly notable, for instance, in the sugar market until the price spike collapsed over the last two months.

The last time globalDairyTrade prices showed such a perfect backwardation trend was last June, shortly before the start of a rally which near-doubled prices by the end of 2009.

Paul Grave, the globalDairyTrade manager, noting “very strong” demand for all products at the auction, attributed the rise to a seasonal downturn in supplies.

“Prices reflected tightening supply as the Australasian production season draws to a close,” he said. Winter typically sees a tail-off in production as cattle are bought indoors, and are switched from grass to feed diets.

While this is often balanced by a surge in output in the northern hemisphere, as cows are put back out to pasture, cold weather has held back dairy operations in the European Union, the world's biggest milk producer.