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Dairy index falls on global woes

Last updated 12:39 27/11/2008

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The dairy industry continues to be buffeted by the global economic downturn, with sharemarket operator NZX's Agrifax dairy index showing a 5 percent fall in November.

The index fell 70 points to 1255 this month, down from 1325 in October, and well below its peak of 1474 six months ago.

The Agrifax dairy index comprises the five major elements making up New Zealand's dairy industry: farm capital (25 percent), farm income (20 percent), commodity prices (15 percent), exchange rate (15 percent), and the share prices of NZ traded equities involved in the dairy industry (25 percent).

"The main instigators in the fall [in the index] were once again the strong depreciation of commodity prices, combined with the scaling back dairy company payouts [by Fonterra]," Agrifax editor Susan Kilsby said.

Kilsby expected the weakening kiwi dollar to cushion softer commodity prices, but warned that improved returns could, however, take a further six months to achieve.

"Prices are expected to fall further in the short-term," she said.

"Dairy commodities remain a buyers market and prices will realistically fall further in the short-term."

Agrifax said because of further downside risk to dairy prices, it was now revising its forecast for milk payout to farmers to NZ$5.90 per kg of milk solids (MS) for the current season.

Fonterra revised its forecast payout for the 2008/09 season, down to NZ$6.00 per kgMS from NZ$6.60, last week.



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