4 Jul 2013

Global dairy price rise tipped to support NZ growth

7:04 am on 4 July 2013

Bank of New Zealand economist Doug Steel says the latest rise in global dairy prices will be a good boost for New Zealand's terms of trade and national income, which will support growth.

The global dairy trade index rose 0.7% at Fonterra's latest fortnightly auction to an average selling price of $US4643 per tonne.

A total of 38,890 tonnes were sold, 64% more than the previous auction.

Prices for whole milk powder rose 0.1%, while rennet casein surged nearly 8% and butter fell nearly 6%.

Mr Steel said the rise may not look like much at face value, but dairy prices on average are 69% higher than a year ago.

He said there's robust demand for some dairy products when global supply is tight and it's not just a result of the New Zealand drought.

"Also the Europeans are struggling, Australia's supply last year was down, the US is pretty flat and underneath it all probably pretty robust demand - so that's the reason we think prices are still pretty firm and even ticking a little bit higher."

But Mr Steel said there were reasonable falls in butter and cheese prices because there has been some stock building around the world in those products.

Overall, he said, the December and January contracts for whole milk powder prices are very strong which bodes well for returns to dairy farmers and New Zealand's overall exports.

Mr Steel said the prices are not expected to remain this high, but they are not likely to return to the pre-drought levels seen earlier this year and last year.

But he said currently prices are holding up better than they could have which may be a result of the tight supply in the Northern hemisphere and their growing season.