#Fonterra dairy prices extend gains

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Prices at Fonterra’s latest online dairy auction rose again overnight, with the drought in the US continuing to affect the market.
The GDT-TWI Price Index rose 2.4 per cent overnight and follows on from a 6 per cent gain two weeks ago. The average winning price at last night’s sale was US$3249 ((NZ$3925) per metric tonne – its fourth gain in a row.
Last night’s gain means prices have surged 21 per cent in around two months.
The ongoing drought in the US is pushing the cost of dairy production up, and conversely offsetting currency pressures, commentators say.
«With the US drought continuing to underpin grains prices at multi-year highs, we can expect further gains in dairy prices ahead,» said Mike Jones, a market strategist at BNZ. «This provides an important buffer against the impact of the higher New Zealand dollar on Fonterra’s payout forecast.»
The prices Fonterra gets at the online dairy auctions determine the payout it passes on to farmers. That, in turn, is closely watched as a lead into the rural economy, a sector that has remained largely subdued since the global financial crisis.
High levels of leverage have seen farmers opt to pay down their debts in the last few years, and a higher payout price is seen as a requirement for them to start spending in the broader rural sector.
Fonterra last month revised its milk payout forecast range for the 2012-2013 season down 30c to $5.25 per kilogram of milksolids from $5.50/k previously, a level that threatens to slow the rate at which the heavily leveraged farm sector climbs out from under its debt burden.
The New Zealand dollar recently traded at US82.63c, up from US80.15c at the previous sale two weeks ago.
Five of the eight product categories recorded gains in the session, led by a 4.7 per cent rise in skim milk powder, followed by a 4.2 per cent increase in rennet casein.
Anhydrous milk fat fall 9.8 per cent, followed by a 3.4 per cent contraction in milk protein concentrate.
Source: Stuff

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