2 Feb 2011

Dairy prices reach new high

3:56 pm on 2 February 2011

Dairy prices reached their highest level for more than two years in Fonterra's latest global auction.

Prices for all products rose 7.2% at the auction on Wednesday, to reach the highest level since the online auctions began in July 2008.

The average winning price rose almost $US300 to $US4246 per tonne.

Prices for whole milk powder rose 5.7% to $US3995 a tonne, skim milk powder rose 8.5% to $US3913 and anhydrous milk fat rose 9.2% to $US6486.

The dairy giant, Fonterra, says global demand and a tight supply of food commodities helped push up prices.

BNZ economist, Doug Steel says dairy prices are now 21% higher than in mid-November, and the latest rise is the fifth consecutive increase.

"I think the main reason for milk going up this time is the deteriorating outlook for US milk supply," he said.

Mr Steel says the supply could even contract in 2011.

He says demand is also picking up, especially from the emerging markets, as the global economy recovers.

Federated Farmers' dairy chairperson Lachlan McKenzie believes the high prices are sustainable long-term.

He says the industry has turned a corner and is now in a phase of improved prices.

In December, Fonterra raised its forecast total payout for the current season by 30 cents because of strong international dairy prices.

The auction came a day after the release of the ANZ Commodity Price Index which rose for the fifth consecutive month in January, to reach a record high.