20 Mar 2013

Dairy prices jump as drought hits supply

8:30 pm on 20 March 2013

Global dairy prices have again risen strongly at Fonterra's latest bimonthly auction as volumes fall due to the drought.

Fonterra says the average winning price rose 15% to $US4683 a metric tonne, with gains across the board, including a 21% increase for whole milk powder.

The increase overnight on Tuesday is the seventh consecutive rise in prices and the biggest since early September 2010.

Volumes put up for auction stood at 16,000 tonnes, a quarter less than at the last auction two weeks ago and only half that of the one before.

Last month the co-operative confirmed its forecast payout for the current season at $5.90 to $6.00 a kilogram of milk solids because dry weather since the end of last year has trimmed the strong production gains seen at the start of the season.

BNZ economist Doug Steel says the price surge may prompt Fonterra to lift its forecast payout for this season and the next, earlier than the scheduled announcement in May.

Specialist food and agribusiness bank Rabobank is predicting that falling supplies and demand from China will keep the international dairy market tight and prices high for the next three to six months.

Rabobank's senior dairy analyst, Hayley Moynihan, says the main driver is the falling supply of dairy products from New Zealand - but weak European and US supply is also having an impact that will continue into the new season.