Prices continue to rise at Fonterra auction

22:21, Jul 16 2013

Another hike in dairy prices paired with a lower New Zealand dollar will be welcome news to farmers.

The GlobalDairyTrade's trade-weighted price index overnight rose 4.9 per cent compared with the last sale two weeks ago, the third straight gain after a recent fall in prices.

The average winning price was US$4828 ($6121) a tonne, up from US$4643.

BNZ market strategist Mike Jones said high demand and tight supply, especially in Europe, saw a rise in the average price of the basket of dairy goods sold at Fonterra's fortnightly auction.

Higher prices were positive for New Zealand's terms of trade, he said.

Jones said the high levels that had been seen since the drought were likely to correct later in the year.

Meanwhile, prices were likely to continue to rise and support the New Zealand dollar, he added.

The kiwi reached US79 cents in early trading, but had pulled back slightly to US78.87c shortly after 7am.

"The dairy auction was certainly a factor," Jones said.

However, a pull-back in US dollar sentiment also contributed to the kiwi's rise, as the markets priced in the intentions of Federal Reserve chairman Ben Bernanketo taper off US asset purchases, he said.

Maximum supply, the measure of how much product Fonterra has for sale, fell to 38,317 tonnes from 39,577 tonnes, with a total of 37,948 tonnes sold.

At the end of May Fonterra announced the opening milk price for the new dairy season was $1.20 a kilogram of milksolids higher than last season's milk price forecast.

Prices rose on the back of the summer drought, leading to a run in price gains, and a drop in supply during the past few months.

After the price gains during the drought, prices normalised with a recent three-auction run of price drops.

However, prices were still more than 50 per cent higher than a year ago.

Last auction. Westpac market strategist Imre Speizer said consumer resistance would emerge at some point if prices continue to rise.

Jones said that for now farmers would be enjoying higher dairy prices and the lower New Zealand dollar, which could translate into a decent payout from Fonterra.

In the latest auction, six of the 10 product categories gained, and two were not traded. The biggest gainer was whole milk powder, the largest category by volume, which rose 7.7 per cent.

Butter milk powder and anhydrous milk fat rose 4.8 per cent and 3.6 per cent respectively.

Rennet casein, which is used for making cheese, fell 5 per cent after a 7.9 per cent gain at the previous auction.

In last night's auction 178 bidders took part, with 107 winning bidders, and 849 qualified to bid.