Article – BusinessDesk

Oct. 26 (BusinessDesk) – Current dairy commodity prices are now well below “fair” expectations of price among global dairy producers, says Fonterra’s chief executive, Theo Spierings.

Dairy prices way below ‘fair’ value, must rebound, says Fonterra’s Spierings

By Pattrick Smellie

Oct. 26 (BusinessDesk) – Current dairy commodity prices are now well below “fair” expectations of price among global dairy producers, says Fonterra’s chief executive, Theo Spierings.

Speaking on TV3’s The Nation, Spierings said his discussions with other global dairy companies and milk traders suggested around US$3,500 per tonne of milksolids is seen as “very fair”.

“It’s well below that now,” he said. The current global index price of US$2,640 a tonne was set in the last GlobalDairyTrade auction, on Oct. 15, when global dairy commodity prices improved slightly after a precipitous halving of value since the start of the year. Prices had been historically high before China cut global demand to use stockpiled product. Chinese demand was expected back at closer to historic volumes of demand from December, with prices recovering in the next “four to six months,” Spierings said, based on Fonterra forecasts.

With the payout per kilogram of milksolids cut to $5.30 for the coming season, from a record $8.65 per kg/ms in the previous season, Spierings conceded further falls could see him looking at a payout figure “starting with a 4”, but wasn’t expecting it.

“They will come back in.”

The Chinese dairy market was “stable” at present, with geo-politics driving markets more than anything, he said, nominating as the main issues the Russian ban on dairy imports from the European Union over Ukraine, the spread of IS in the Middle East, and ebola in West Africa.

He warned ebola could knock the $150 million hole in the annual export trade to West Africa.

“It doesn’t feel to me like it’s under control,at the moment and I say that mildly,” said Spierings of efforts so far to contain ebola’s spread in a region where he had lived and where cross-border travel was commonplace. Borders were being locked down, hampering normal freight logistics, which could limit supplies, while any containment of populations that prevented shopping and normal routines could also hit sales.

Spierings expressed doubts about the likelihood of the Trans-Pacific Partnership free tree agreement ever happening.

“In 2011, I was pretty positive about reaching a deal in the near future,” he said. “But the longer these things take and I look at the complexity and who wants what”.

“It’s going to be very difficult with all the issues you see in the world at this time,” he said, with many countries pushing uncompromising agendas in the TPP talks.

Asked whether New Zealand would reach a “peak milk” level of dairy farm conversion, Spierings said he believed a further 10 years’ growth at two to three percent annually could be achieved without compromising freshwater quality, “60 percent based on conversions and more animals, and 40 percent is productivity.”

He accepted “there could be a point in time that you say ‘no more’ … and that we go on the productivity route only.”

However, that point had not been reached, based on analysis on a “catchment by catchment all around New Zealand” basis by Fonterra to understand the emerging limitations on their industry’s growth in New Zealand.

(BusinessDesk)

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