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Prices flat in fortnightly globalDairyTrade auction of milk powder; price index up 0.1% but down 10.3% from March 1 peak

Posted in Rural News

Fonterra's payout is set to be a record high this year.

By Bernard Hickey

Prices were broadly flat in the fortnightly internet auction overnight of wholesale milk powder on Fonterra's globalDairyTrade (gDT) platform.

The gDT Trade Weighted Index of prices in US dollars rose 0.1% to 1,272 in the overnight auction from the last auction on April 5. This is down 10.3% from the auction platform's March 1, 2011 record high of 1,418. See full results here at gDT.

The internet auctions began in July 2008, but the gDT TWI calculated before those auctions puts the record high for powder prices at 1,613 in October 2007, which means the prices overnight were 21.1% below their peak. In October 2007 the New Zealand dollar was around 77 USc. It is currently around 79 USc.

On March 23 Fonterra confirmed its forecast for a payout of NZ$7.75-7.80/kg in the current 2010/11 season. See our March 23 article on Fonterra's payout here.

This would beat the previous record high cash payout of NZ$7.66/kg in the 2007/08 season and be up from the NZ$6.37/kg payout last season.

Fonterra said it expected production for the full 2010/11 season would be in line with or slightly ahead of the 1.286 billion kg of milk solids collected in 2009/10 despite an early Summer drought in Northland and the Waikato. This implies a total payout for Fonterra's 10,500 farmers of around NZ$10 billion, up around NZ$1.84 billion from the previous year.

However, Fonterra chairman Henry van der Heyden warned on March 23 that there could be a downward correction in prices and farmers should always be prepared for a drop on global commodity markets, particularly if recent steep rises eat into demand.

Fonterra is forecasting a milk price for the year of NZ$7.50/kg and distributable profits of 40-50 cents a share. However, Fonterra is planning to retain between 15-20 cents a share, leaving a dividend of around 25-30 cents.

Reserve Bank Governor Alan Bollard spoke on April 12 about how a structural shift higher in New Zealand's commodity export prices had improved New Zealand's terms of trade. He appeared relaxed about a rise in the currency to reduce the inflationary effects of such a rise. See our April 12 article here on Bollard's speech.

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