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Strong commodities market aids Fonterra

By staff reporter , 25-Jan-2007

Fonterra, New Zealand's largest dairy co-operative, predicted world commodity prices would continue rebounding strongly over the next few months as supply and demand tightened.

Fonterra, which saw operating revenue rise $519m to $6.5bn in the six months to 30 November, said the recent rise in commodity prices made it confident about meeting targets.

"The supply situation is now constrained with reduced production in Australia and lower volumes out of the US and Europe, and we have seen prices increase in the second half," said chief executive Andrew Ferrier.

Fonterra is the world's largest dairy exporter and its prediction on pricing will build more confidence among dairy firms in Europe.

The European Commission told industry leaders from the UK last week that it also expected record world prices to continue this year in dairy commodity markets.

One of the worst droughts on record in Australia, while unfortunate for domestic farmers, has reduced world stocks and boosted prices further recently.

Fonterra warned that New Zealand's high currency could still wipe out its gains from higher prices, however.

Henry van der Hayden, the group's chairman, said the current situation was unsustainable. "It is ironic that as we go into 2007, New Zealand's Year of Export, we continue to have an uncompetitive exchange rate and high interest rates."

Van der Hayden criticised New Zealand's high consumption economy last October, saying it harmed exports by supporting an over-valued currency. Payouts to farmers would have been "significantly higher" without this, he said.

This, coupled with a rising US dollar, meant Fonterra's good results in the first half "would do little more than provide a buffer against full-year currency impacts".

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