17 Apr 2013

Global dairy prices again rise

7:17 pm on 17 April 2013

Global dairy prices nudged higher again on Tuesday night as a new report says the impact of the drought could be zero.

The average winning price at Fonterra's fortnightly auction, rose 0.6% to $US4968 per metric tonne, the ninth consective price rise.

But it is a sharp contrast to the previous three auctions where prices spiked by up to 15%.

But Bank of New Zealand economist Doug Steel says a small price rise is still positive.

"The gains have slowed down a lot and on its own the 0.6% gain in average dairy product prices doesn't sound very much - when it follows a 45% surge in prices since late February it's still meaningful and a positive result."

Butter had the biggest price rise, up nearly 7%, while skim milk powder fell 3% and whole milk powder rose 2.4%.

Volumes rose by nearly 1000 tonnes but are still nearly a third of that sold in January with the drought hitting milk production.

In March, Fonterra lifted its forecast cash payout which farmers say will help offset the lower incomes from reduced output.

But in a new report, Westpac said the cost of the drought could be close to zero.

It said Fonterra had cornered the fast growing Chinese whole milk powder market with demand rising more than 600,000 metric tonnes in the last five years.

With the dive in dairy production, prices have surged as Chinese mothers insist on foreign milk powder no matter what the price.