The recent surge in global dairy commodity prices is only likely to last as long as mid-year.
Economists have suggested that the spike which will serve as a positive start to the new season for Fonterra will soon lose traction as a result of reduced pressure which had caused a decline in dairy production from both Australia and New Zealand according to stuff.co.nz
Fonterra had recently enjoyed a surge of 14.2 percent on the most recent auction which was the eighth straight gain in average price. Doug Steel, BNZ’s senior economist, believes that export demands, particularly from China are further fuelling the price hike.
Despite a long and slow recovery expected for New Zealand’s drought stricken North Island, Steel urges producers not to become too optimistic about the continuation of the current prices into the new season as the Northern Hemisphere’s dairy season gets underway.
Con Willians, ANZ’s rural economist, also believes that the strong prices will provide benefit into the new season. He noted a 28 percent rise per tonne to US $5142 in the average price of skim milk and a 7 percent rise in the price of wholemilk powder in last week’s auction.
However contract prices for Fonterra wholemilk powder to be supplied in August hit US $6100 making the price levels self-limiting and benefit from the price hike hard to measure.
The short term payout for now may lift, but with a strong rise in the New Zealand dollar, exports will be affected.
New Zealand is the world’s largest dairy exporter.