8 Aug 2013

Good dairy revenue likely given global prices - economist

8:56 am on 8 August 2013

An economist says the high dairy prices at Fonterra's latest global dairy auction suggests that there will be good revenue coming from the dairy sector over the next 12 months.

The Global Dairy Trade Weighted Index, which covers a range of 30 products, fell 2.4% with an average selling price of $US4847 a tonne.

It's the first fall since June, and is off the back of very high dairy prices. The average winning price in the latest auction is almost three quarters higher than it was this time last year.

The volumes traded rose nearly 60% to more than 60,587 tonnes.

Bank of New Zealand economist Doug Steel says while he will be watching for any impact of Fonterra's contamination scare in the longer term, from the latest auction result there's no sign that the market has been spooked.

He says prices for whole milk powder have strengthened in the longer term, which he says is important particularly for November through to February contracts when the bulk of New Zealand milk is made.

"The fact we're going to get good prices for the bulk of New Zealand's dairy output over the coming 12 months is very good news."

Mr Steel says there are a number of factors which could have influenced the latest dairy prices.

Cheese has been stockpiled in the US and the outlook for US milk production is increasing because grain prices are coming down.

Mr Steel says these factors have seen milk prices in the US fall quite a way from the previous auction, which may be having a downward influence on prices.

He says a 2.4% change in overall milk prices between two periods is well within the norm for these milk auctions.