Drought gives dairy auction a boost

Last updated 09:25 03/04/2013
milk powder
EXTENDING GAINS: Prices at Fonterra's online dairy auction rose again as the drought continues.

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Prices at Fonterra's latest online dairy auction have continued to soar into uncharted territory, as supply issues caused by drought in the North Island maintain the price push.

The GlobalDairyTrade TWI Price Index surged 14.2 per cent compared to the last sale two weeks ago, marking the eighth straight gain for the basket of dairy products. It was the third consecutive auction with double-digit price gains.

The average winning price at the auction rose to US$4966 (NZ$5900) per metric tonne, up from $US4683.

Maximum supply, or the measure of how much dairy product Fonterra has for sale, dropped to 14,610 tonnes from 16,320 tonnes, with a total of 13,912 tonnes sold.

BNZ market strategist Kymberly Martin said the double-digit price rise was due to supply constraints caused by the drought.

"New Zealand is such a major supplier on the world market," she said.

Prices had been on an upward trend since last year, but while they were unlikely to maintain their recent momentum, they should stay steady.

The effects of the dry summer throughout the country are being felt in the dairy industry with most North Island producing about 30 per cent less milk in March.

The drought's grip on milk production is expected to increase, with farmers already drying off cows or thinking about drying them off soon, which means little more milk for the next two months.

While this is a concern, only 13 per cent of the season's overall milk production is collected in April-May.

The price highs paint a strong picture for next season and will help dairy farmers in the worst-affected areas.

At last night's auction, seven of the nine product categories rose, and two weren't traded.

Skim milk powder rose 27.8 per cent. The next biggest gainer was whole milk powder, the largest product category by volume, which rose 7 per cent, while anhydrous milk fat, was up 6.7 per cent.

Lactose and milk protein concentrate were not traded.

The auction saw 171 participants out of 793 qualified bidders take part, with 78 winning bids. The greatest number of bidders came from North Asia, followed by the Middle East, North Africa, and South East Asia. 

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- BusinessDay.co.nz

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