6 Dec 2012

Dairy prices should rebound - economist

9:07 am on 6 December 2012

An economist says world dairy prices should strengthen throughout 2013 once Europe and America step back from the fiscal cliff.

Prices fell in Fonterra's fortnightly auction fell 2% on Wednesday to an average $US3290 a metric tonne, the first fall in two months.

The price of whole milk powder led the fall, down 3.5%, while anhydrous milk rose 3.7%.

BNZ economist Doug Steel says a strong start to the milk production season in the southern hemisphere has pushed down prices but they should rebound as the world economy recovers.

He says a lot depends on what happens in the European debt discussions, as well as the US fiscal situation at the beginning of the year.

"It's all eyes on that for what happens in terms of economic growth in the world in 2013 - if it was to push higher as current consensus forecasts then that would be supportive of improving prices through next year."

Mr Steel says global dairy prices should strengthen next year even if the volume of milk produced this season eclipses last season's record, which he says is increasingly likely.