6 Mar 2013

Expert says high prices no silver lining for farmers

7:03 pm on 6 March 2013

High dairy prices are not a silver lining for drought-stricken farmers, an agribusiness expert says.

The impact of drought on milk production is the main factor in a jump in international dairy commodity prices in an auction overnight on Tuesday.

Keith Woodford from Lincoln University told Radio New Zealand's Checkpoint programme on Wednesday although the drought in New Zealand has boosted the value of dairy internationally, farmers will not see the benefits until 2014.

"The effects of the drought, they're being felt immediately but, on the other side of the coin, the overnight increase in the global dairy auction is, well there's only one word for it - spectacular."

Dairy prices have shot up a further 10%, meaning they have risen 18% over the whole season. But Mr Woodford says the drought has no upside for sheep farmers, as lamb prices remain unaffected.

Fonterra had forecast that production would grow 1% on last season, but Mr Woodford expects the dairy cooperative will now announce a drop in production.

In the overnight auction, the average winning price rose 10% to $US4216 per metric tonne with gains across the board, including an increase of 18% for whole milk powder.

Butter prices increased by almost 10%, while skim milk powder prices were up more than 4.5%.

It is the sixth consecutive rise in prices and the biggest since early June 2012.

Forecast payout may be higher

The jump in global dairy prices due to the drought could push up the forecast payout dairy farmer owners receive for the season.

In February, Fonterra confirmed its forecast payout for the current season at $5.90 to $6 per kilo of milk solids because dry weather since the end of 2012 had trimmed strong production gains seen at the start of the season.

BNZ economist Doug Steel said on Wednesday the latest result adds pressure on Fonterra's payout.

"We anticipate that by the end of the season the payout per kilogram of milk solids will go up from where it is from Fonterra's forecast last week - the increase in international prices far outstripping the gains in the Kiwi dollar at the moment."