Prices climb on drought woes

Prices at Fonterra's latest online dairy auction posted strong gains yesterday, the second session in a row, as the effect of the drought in the United States starts to make itself felt on the global milk supply chain.

The GDT-TWI Price Index rose 7.8 per cent overnight, and follows on from a 3.5 per cent gain two weeks ago. The average winning price at last night's sale was US$3054 per metric tonne.

'We have been waiting for a decent lift in global dairy prices given market developments such as the US drought,' said Kymberley Martin, a market strategist at Bank of New Zealand.

Speculation has been building recently that dairy farmers were set for a downward revision in the farmgate payouts as milk powder exports got caught between a high New Zealand dollar and increased global supply.

Last night's auction has allayed that somewhat, as the increased costs of dairy cow feed in the US tighten supply, but there is still concern the high kiwi could offset this.

If the payout is cut, it is likely to put pressure on the recovery in the rural economy, with farmers still struggling to get their balance sheets in the black after heavy lending before the financial crisis.

'This is an important result to keep current dairy payout forecasts on track when the risk of a downward revision had been starting to build,' Martin said.

Of the eight product categories, seven posted price gains with activity again focused on the short- ated delivery contracts.

Prices of milk protein concentrate rose 15.4 per cent, followed by a 14 per cent rise in anhydrous milk fat, and a 10.2 per cent gain in butter milk powder.

Lactose was the only category not to show any improvement, with prices flat compared with the sales two week ago.

The auction attracted 168 participants. Fairfax NZ

Taranaki Daily News