18 Jul 2013

Fonterra predicted to boost payout to dairy farmers

8:31 am on 18 July 2013

An economist is predicting Fonterra will raise its payout to dairy farmers as world dairy prices continue to remain strong.

International milk prices rose for a third consecutive time at Fonterra's fortnightly auction on Wednesday, and are now 79% higher than a year ago.

The Global Dairy Trade index jumped 4.9% with an average selling price of $US4828 per tonne.

Nearly 38,000 tonnes was sold, falling 2.4% from the previous auction two weeks ago.

The benchmark whole milk powder prices surged 7.7% to more than $US5000 a tonne.

BNZ economist Doug Steel says the surge is indicative of the tightness in global dairy markets overall.

"The January 2014 contract for wholemilk powder prices above $US5000 a tonne as well, all that suggests we're going to get a very good dairy payout this season."

Mr Steel says tight supply and robust demand are driving prices higher, and they are likely to remain strong.

He says if the current pricing level is maintained it's a very good income boost for the economy and the dairy payout to farmers could be at least $7 per kilogram of milk solids.

Mr Steel says it's encouraging prices remain very firm in the latest auction for forward pricing, that is contracts that are out to November, December and January.