Dairy prices set to rise in supply shortfall

International dairy prices look set to keep rising as drought-affected NZ  joins the list of countries posting reduced milk production reports Stuff. Dairy giant Fonterra is being forced to juggle customer requirements as supply to key Waikato powder manufacturing sites dries up. Fonterra, the world's biggest dairy exporter, said it was reviewing all supply commitments yet to be formally contracted to ensure it could meet existing supply contracts as central North Island drought impacts on milk flows to its powder and cream manufacturing plants concentrated in the Waikato. More than half Fonterra's milk production comes from farms north of Taupo. Northland, which produces about 6 per cent of Fonterra's milk supply has been an officially declared drought zone for some time, but now production in the central North Island, which includes dairy heartland the Waikato, is this month down 30 per cent on the same time last year, Fonterra said. International dairy prices are already reflecting constrained global supply with Fonterra's internet milk powder auction this month recording a massive 21 per cent surge in average price per tonne. Fonterra offered a lesser volume on this month's auction – 17,000 tonnes compared with 22,000 tonnes last month, and has not ruled out offering a reduced volume next month. Fonterra acting director of portfolio optimisation Mark Robins said as news of the North Island drought spread and Australia and Europe continued to report reduced milk production, there would be an "inevitable" impact on demand and international price.Global markets had already seen the effect of strong demand from China and Asia generally, and Middle Eastern and North African appetite for dairy products were getting back to pre-global recession levels.