China and Russia halted imports of some milk powder from New Zealand's Fonterra Cooperative Group Ltd. after the largest dairy exporter warned of a contaminated ingredient. The kiwi dollar fell to a one-month low.

Russia temporarily suspended purchases of all New Zealand dairy products, Trade Minister Tim Groser said today at a press conference in Wellington. China stopped imports of whey protein and a dairy base powder from Fonterra used in infant formula, not all Fonterra milk powder as earlier stated by the Ministry for Primary Industries, Groser said.

Fonterra said on Aug. 3 that three batches of the product made last year may contain bacteria that can cause a rare illness called botulism. The contamination affects about 38 metric tons of whey protein concentrate, the company said today. Chief Executive Office Theo Spierings apologized in Beijing today and said China will lift restrictions on its products as soon as the company provides more information.

Eoin Treacy's view China has had some high profile issues with contaminated dairy products which New Zealand producers of powdered milk benefitted enormously from. Although Fonterra's problem is with protein shakes, how it handles the public relations aspect will probably have an influence on the trajectory of its business in one of its largest growth markets. Milk continues to represent a major growth sector globally as incomes improve and demand for high calorie and more nutritious foods increases.

Milk futures have held a medium-term upward bias since 2009 and a sustained break in the progression of higher reaction lows would be required to question potential for higher to lateral ranging. The EU's milk quota system expires in 2015 which will afford low cost producers in particular the opportunity to increase production. This represents a substantial medium-term risk to pricing.

Fonterra (Est P/E 15.81, DY 4.66%) dropped back to test the NZ$6.50 area today before recouping more than half the decline. A sustained move below today's lows would be required to question medium-term potential for higher to lateral ranging.

While Fonterra's issue is listed in the above article as a contributing factor in the recent weakness of the New Zealand Dollar, the more likely cause is the competitive disadvantage the weakness of the Australian Dollar puts New Zealand at. The Australian Dollar has deteriorated from a peak near NZ$1.37 in 2011 to test the NZ$1.05 area last week. Considering the extent of the oversold condition, and New Zealand's incentive to weaken the currency, the potential for some additional short covering has increased.

Some of Ireland's best performing companies are also large exporters of milk products. Kerry Group (Est. P/E 18.39, DY 0.79%) is an S&P Europe 350 Dividend Aristocrat. The share has held a progression of higher major reaction lows since 2009 and a sustained move below the late June low near €40 would be required to question medium-term uptrend consistency. Glanbia (Est P/E 17.91, DY 0,91%) accelerated to a medium-term peak near €11 by May and continues to range in what has so far been a relatively gradual reversion towards the mean.

Fresh dairy products accounted for almost 56% of France listed Danone (Est P/E 19.32, DY 2.43%) revenue in 2012. The share has been consolidating in the region of its all-time peak since April and a sustained move below the 200-day MA would be required to question medium-term upside potential.

US listed Dean Foods (Est P/E 21.15) retested the upper side of its base a year ago and has held a progression of higher reaction lows since. While somewhat overbought in the short-term a sustained move below $9 would be required to question medium-term recovery potential

Dairy Crest Group (Est P/E 13.3, DY 4.6%) is almost entirely focused on the UK market but is also worthy of mention. The share broke successfully above the psychological 400p area for first time since 2008 in January and remains in a step sequence uptrend. A sustained move below 450p would be required to question medium-term potential for additional upside.