More price rises at Fonterra dairy auction
Another strong showing for Fonterra's online dairy auction has augered well for dairy farmer incomes, possibly adding another 25c to the predicted farm gate price at the end of the season.
Overnight, the fortnightly Global Dairy Trade-TWI price index ended 1.1 per cent higher, building on a 2 per cent rise at the previous auction.
The average winning price stood at US$3442 ($4091) per metric tonne, up from US$3357 two weeks ago.
The index is a closely watched barometer for the economy because of the influence of dairy exports on the dollar, and because Fonterra is the country's biggest company.
BNZ market strategist Kymberly Martin said a second good auction for the year was good news for the heavily indebted dairy sector.
"This is very much in line with our view of a positive trend in dairy prices as we start 2013."
It also supported the bank's broader view that commodity prices will help underpin the Kiwi dollar this year. Trading in the New Zealand dollar overnight stayed within recent ranges, averaging US84c.
ANZ strategist Con Williams said the auction's strength was in the detail, particularly the 2.8 per cent rise in whole milk powder prices.
Last night's result signalled the current farm gate payout forecast of $5.50 per kg of milk solids could go higher, he said.
More positive signals came from Fonterra last month, which said any movements in the Kiwi dollar would have a neutral effect, implying that it was fully hedged for the rest of the year.
That meant farm gate prices would be driven by movements in the auction. And while the World Bank was urging caution over global demand this year, growth in supply from the world's major dairy exporters continued to be lacklustre.
"Slow or no growth in milk production across the major export regions is expected for the next six months, which should lead to further strength in dairy prices," Williams said.
Last night's auction involved 202 participants out of 748 qualifying bidders, with 144 winning bids.
- © Fairfax NZ News
Do you agree with Fonterra's decision to hold its forecasted payout at $8.30 a kg of milksolids and slash its predicted dividend from 32c a share to 10c?Related story: 'Abnormal' situation hits Fonterra forecasts