20 Sep 2012

Dollar eating into dairy farmers' returns

8:11 am on 20 September 2012

The surging New Zealand dollar is eating into returns for dairy farmers, negating a gradual improvement in prices.

Dairy cooperative Fonterra's bi-monthly Global Trade Weighted Index rose at a fourth successive auction by nearly 2.5% to an average winning price of $US3249 a tonne.

However, the index is still about a third below its near four-year peak in March last year.

ANZ Bank rural economist Con Williams says demand remains robust, while milk production in Europe is slowing faster than expected due to higher, drought-related grain costs.

In August, Fonterra cut its forecast payout blaming the high New Zealand dollar, and Mr Williams says that is likely to curb returns to farmers.