3 Sep 2009

Dollar offsets rise in dairy prices

7:27 am on 3 September 2009

Fonterra is not getting too excited about a jump in dairy prices just yet, saying it will wait and see whether the rise in demand is sustainable.

In its latest monthly auction on Tuesday, the average price for whole milk powder jumped 24% to $US2858 per metric tonne, following a similar rise last month.

Commentators say prices have turned, but warn the high New Zealand dollar will offset any gains.

Dairy prices have risen 50% in the past two months, signalling a rebound in commodity prices and hope for the wider economy.

TD Securities senior strategist Annette Beacher says demand for whole milk powder is likely to continue to be strong in coming months.

While the dollar did not react to the latest dairy prices, she says it's still 37% higher than the low reached in March.

Federated Farmers says the currency is a concern and more should be done to control its volatility.

However, if dairy prices are maintained at current levels, they could help offset the affects of the high dollar on Fonterra's average payout to farmers this season.

But Westpac currency specialist Imre Speizer says it's not certain that the dollar will continue to rise. He says 69 US cents is "the new magic number" to watch.

At 6.40am on Thursday, the New Zealand dollar was trading at 67.38 US, 80.57 Australian cents, 41.40 pence, 62.09 yen and 0.4719 euro. The Trade Weighted Index was at 62.47.