5 Aug 2009

Farmers warned tough times still to come

7:25 pm on 5 August 2009

Farmers and the public are being told a rise in dairy prices will not necessarily bring an end to hard times.

The comments follow a 25% rise in milk powder prices at Fonterra's online global milk powder auction on Tuesday.

The current price of $US2301 per tonne compares with $US1841 month. It is, however, still less than half the value of $US4750 achieved at auction in March last year.

The monthly milk powder auctions cover only a tenth of Fonterra's output but usually send a price message to other contracts.

The dairy cooperative is pleased with events, but warns further price volatility is likely.

Federated Farmers is also happy, but warns dark times are not over by a long shot.

It says milk solid payments to farmers are well down on the $7.90 of the boom years. For now, farmers are on $2.90 as an advance on a hoped-for final payout of $4.55.

Farmers say the auction results boost confidence over the expected price, but are taking nothing for granted, and are hunkering down in the meantime.

Philip York, of Federated Farmers, says the increase is a small adjustment after more than a year of falling prices and the impact of those falls has still not been fully felt.

Mr York says despite the August rise, it is still not certain that the forecast milk payout this season will be maintained and until it is, farmers are having to tighten their belts.

The New Zealand dollar lifted nearly one cent following the announcement. It jumped to 67.5 US cents and stayed there during Wednesday morning's trade.

Westpac economist Doug Steel says the result took financial markets by surprise. He says it is a boost to the economy and could ease pressure on the Reserve Bank to cut the Official Cash Rate further.