Economist says dairy prices need to rise

Last updated 08:59 06/09/2012

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International dairy prices will have to continue improving for some time yet on Fonterra's GlobalDairyTrade event if the dairy giant is to achieve its latest payout forecast for this season against the strong kiwi dollar, says an economist.

BNZ's Doug Steel said the 6 per cent lift in the average price of commodities on GDT's 75th event was not a surprise given world supply and demand trends but it was "still good to see".

It was the third average price increase in a row in the twice-a-month online auctions, launched by Fonterra but now with other international dairy company selling participants.

Fonterra recently downgraded its payout forecast for the 2012-2013 dairy season by 30c, shaving $500 million off the previously predicted potential injection for the national economy.

Steel said even with this reduced forecast, commodity prices would have to keep improving given predictions that the kiwi dollar would hold firm into at least the middle of next year.

The continuing improvement in the average price on GDT appeared closely related to a perception of reducing supply, he said.

"You can never know for sure but there is the drought in the US and the big supply year from Australia and New Zealand has been and gone. But it's good to see given concerns about the slowing economy in Asia, particularly China."

The average price of whole milk powder on the Tuesday overnight auction rose 4.3 per cent to US$2978 a metric tonne, compared with the previous auction. Skim milk powder was up 7.5 per cent to US$3211; the anhydrous milkfat price jumped 11.8 per cent to US$3530.

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- Waikato Times

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