Strong dairy auction prompts rally in dollar


The New Zealand dollar has leapt following a better-than-expected world dairy auction.

Dairy prices leapt 12.7 percent at Wednesday's GlobalDairyTrade auction.

New Zealand's biggest dairy export, whole milk powder, soared 18.9 percent. The product has now gained almost thirty percent in the last month.

The New Zealand dollar had risen to 72.82 US cents by 7am Wednesday, compared to 72.26 US cents at 5pm Tuesday.

The kiwi is now just over one cent higher against the US dollar than it was on Monday evening, when it was trading at 71.75 cents.

The Kiwi had risen to 94.54 Australian cents by 7am Wednesday and was sitting at 55.86 British pence.

The trade-weighted index (a basket of the currencies of New Zealand's major trading partners) has climbed to 76.93 from 76.36 last night.

Farmers and analysts had expected a strong result at the dairy auction, with prices tipped to rise by around ten percent. But the result exceeded expectations.

AgriHQ analyst Susan Kilsby says: "It was a stunning result and it couldn't have come at a better time for our farmers. I think it is now safe to say the market has turned a corner."

The increase of 18.9 percent in whole milk powder prices followed a rise of 9.9 percent at the beginning of August.

Ms Kilsby says there was strong buying activity out of China and South East Asia.

"Last year we saw a similar result with prices lifting at this time of the season only to fall away again in October. This season I am more confident that prices will be able to hold up as global milk supply is now retracting rather than growing."

Economists at Westpac are sounding a note of caution. They point to the solid gains made in August and September last year that were subsequently reversed.

But Westpac says the fundamentals do appear to be shifting in farmers' favour.

"Globally, growth in milk supply continues to moderate, most notably out of Europe but also elsewhere. But perhaps more promisingly for farmers, there are signs that the most recent step up in prices has coincided with a lift in Chinese demand."

Westpac is forecasting a farmgate milk price of $4.60 per kilogram of milk solids. But it says this could be revised upwards.

Fonterra is currently forecasting a payout of $4.25.

Dairy NZ estimates that the average breakeven point for farmers this season is $5.05.


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