21 Jul 2011

Dairy payout watched as prices fall, dollar rises

7:54 am on 21 July 2011

An economist says Fonterra's forecast payout may come under pressure if global dairy prices continue to fall while the New Zealand dollar rises.

The dairy cooperative's global dairy trade index fell 5.1% on Wednesday to an average selling price of $US3796 a metric tonne.

Prices have fallen at the last three auctions, and are now 20% lower than in March. In that time, the New Zealand dollar has climbed more than 15%.

BNZ economist Doug Steel says the trend of prices coming off their peak and the dollar rising is the worst of all worlds as the dairy price in New Zealand dollars falls sharply.

He says if the trend was to continue there would be downward pressure on the payout forecast.

Mr Steel says it's clear dairy prices have passed their peak, though they remain robust for now at 12% higher than this time last year and more than 18% higher than the long-term average.

The New Zealand dollar was buying 85.47 US cents on Thursday morning.

Fonterra made an initial forecast of its payout for the current production season to farmer shareholders of between $7.15 and $7.25.