18 Mar 2015

Dollar falls after dairy prices drop

3:05 pm on 18 March 2015

The New Zealand dollar has dropped after a weaker result in the overnight dairy index.

Prices decreased 8.8 percent to US$3,136 a tonne.

A key price, whole milk powder, fell by 9.6 percent, to $2,928 US dollars, below the $3500 figure that underpins Fonterra's current forecast milk payout of $4.70 per kilo of milk solids.

The kiwi currently sits at 73 US cents, it was tracking at 73.78 during Checkpoint last night.

ANZ economist Con Williams said sluggish international demand, rising supply and the 1080 contamination threat were factors in this fortnight's result.

"Some buyers may be sitting on their hands and seeing how their customers are going to react to that threat before they commit to buying."

Fonterra will report its half-year earnings next week, and Mr Williams said the current season's forecast payout of $4.70 remains sensible.

But he was worried the current environment could make it difficult for next year's payout.

"It's a perfect storm that's going to weight on the outlook for the 2015/16 season."

Mr Williams said the dollar needs to fall to make sure dairy farmers are not left high and dry.