High milk prices are "the new normal" and increased global commodity demand, led by emerging markets, is set to boost them further, according to Fonterra Cooperative Group Ltd., the world's largest dairy exporter.

Whole-milk powder prices will likely remain at least 50 percent above their historical averages in the longer term, Chief Executive Officer Andrew Ferrier said in an interview today from Auckland.

Ferrier's forecast adds to signs of quickening global food inflation as rising incomes in emerging markets such as China spur greater consumption of dairy and meat products. Food prices climbed to a record last month, according a 55-item basket tracked by the United Nations. That's squeezing the poorest, World Bank President Robert Zoellick has warned.

"The price can probably move up from today's price a way before we start burning off demand," said Ferrier. "Higher prices are the new normal." Fonterra accounts for about 40 percent of the global trade in butter, milk powder and cheese.

Eoin Treacy's view This 20-year chart of Class III Milk futures demonstrates that prices have been highly cyclical. However, with so many commodities hitting new nominal highs and breaking long-term inflation adjusted downtrends, it is reasonable to assume that the trajectory of milk prices is also likely to sustain an upward bias.

I met more than a few Irish farmers who sold land for housing development during the boom, both because they thought it was not possible to make a reasonable living from farming and because the price they received for development land was quite literally extraordinary. It could be a lifetime before similar prices are again seen for development land in Ireland, but dairy prices do look set for recovery.

Fonterra mentioned in the above article is a private company and the largest in New Zealand. Ireland is also a major exporter of dairy produce, whether powdered milk or cheese. I reviewed a number of Irish food related shares in Comment of the Day on February 8th. Most of those companies have a reasonably high degree of control over their margins. This article from TheDairySite.com may also be of interest.

US listed Dean Foods is at the other end of the spectrum. It is being squeezed between having to pay higher prices to farmers for milk and receiving less from grocers. The share remains in a medium-term downtrend but has lost downward momentum and closed its overextension relative to the 200-day MA. A sustained move above $12.50 would break the progression of lower rally highs and potentially indicate a return to medium-term demand dominance.