Stability 'returning' to dairy price

LAURA WALTERS
Last updated 09:31 03/07/2013

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Another slight rise in dairy prices is an indicator that the effects of the drought on the sector are over, a strategist says.

The GlobalDairyTrade's trade-weighted price index overnight rose 0.7 per cent compared with the last sale two weeks ago.

The prices Fonterra gets at the online dairy auctions determine the payout it passes on to farmers. That, in turn, is closely watched as a lead into the rural economy, a sector that has remained largely subdued since the global financial crisis.

The rise was a break from the recent fall in prices after a nine-auction run of gains for the basket of dairy products caused by a lack of supply after the summer's drought. The average winning price was a US$4643 (NZ$5998) tonne, up from US$4598.

Westpac market strategist Imre Speizer said that while the gain at the 95th auction was only small it was an extension of the stability after the drought let-down.

Maximum supply, the measure of how much product Fonterra has for sale, rose to 39,577 tonnes from 24,170 tonnes, with a total of 38,890 tonnes sold.

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.

The path of dairy prices had been higher since the lows seen this time last year, Speizer said, "then you had the drought which accelerated it".

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

While prices were still more than 50 per cent higher than a year ago, they had stabilised, Speizer said.

However, there would come a level where there would be consumer resistance to high dairy prices, he said.

Farmers would be happy with the high run of dairy prices. However, as gains were marginal they would need to be consistent in order to translate into a payout for farmers, Speizer said.

In the latest auction, six of the 10 product categories gained, and two were not traded. The biggest gainer was rennet casein - used for making cheese - which rose 7.9 per cent. Butter milk powder rose 6 per cent, followed by skim milk powder, up by 3.1 per cent.

Whole milk powder, the largest category by volume, rose a marginal 0.1 per cent. The price of butter and cheddar dropped 5.7 per cent and 3.7 per cent respectively.

In last night's auction 182 bidders took part, with 109 winning bidders, and 844 qualified to bid.

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- BusinessDay.co.nz

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