Dairy prices up 10.4% from last auction in USD, up 12.4% in NZD; whole milk powder up 18%

Dairy prices up 10.4% from last auction in USD, up 12.4% in NZD; whole milk powder up 18%
Dairy prices are up more than 20% over a year ago.

In the latest globaldairytrade auction, prices have surged higher in both US dollar terms and NZ dollar terms.

The overall weighted GDT index is up 10.4% from the last auction two weeks ago, and up 22.9% on the equivalent auction a year ago.

In New Zealand dollars the GDT index is up 12.4% from the previous auction, and up 21.2% on a year ago.

The biggest gainer was for whole milk powders, which were up 18% in US dollar terms.

Butter was up 9.6%, cheddar was up 8.6%, and skim milk powders were up 4.6%.

Milk protein concentrate was up 11.0% and butter milk powder was up 14.3%.

Many North Island dairy regions are gripped by drought and milk volumes are reported to be 'crashing' in these areas.

However, South Island milk volumes are still rising, and Fonterra still expects overall annual production to be up 1%.

The New Zealand dollar rose 0.5c against the American currency on the results and is still climbing.

New Zealand is the biggest dairy exporter in the world. Milk production in other countries is also reported to be soft or declining.

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D-farmers in the South Island have a big big smile on their faces.

Never mind them - I am ever so grateful the lower risk of dairy farmers defaulting on their bank borrowings make my OBR exposed deposits ever so slightly safer.

So we are farming for drought. This is not BAU.
The drought reduces productivity of the whole re NZ Inc (outputs from inputs) and profitability/financial margin (price of outputs v cost of inputs).
In Oz

Dairy farms at a loss in price war
Milk price retail competition, the high dollar and rising costs have contributed to a collapse in the average cash income of dairy farms, down from $143,200 in 2011-12 to an estimated $95,000 this financial.
And when they look look high level:
Sources of growth: past and future
Productivity growth is vital in supporting the viability of Australian agriculture. While Australian agriculture has been reasonably successful in maintaining its productivity and competitiveness against key competitors (Nossal & Sheng 2013), sustaining this position over the next five decades may be more challenging. High input costs and environmental pressures associated with land, water, biodiversity and climate change may constrain agricultural productivity improvements. Further, improvements that have yielded productivity gains in the past may have less potential to generate growth in the future.
Victoria dairy land in Victoria:
BIG DAIRY - PROVEN DROUGHT AND FLOOD FREE Warm gently undulating country. 2000 Acres with Rotary ( Near New Herringbone Dairy, not used currently ). Pivot and Long Lateral Irrigation. 600 Megs Water and 750m Rainfall plus Town Water. 2 Dams Holding Capacity: 800 megs of Water. Top Country Central to 5 Factories and towns. Ready to milk 1400 cows up from 700. Upgrade has taken 4 years. RE: Tracks, Fencing, Pastures and Rotary Dairy Re-Build. (5 Homes) $9.2M or W.I.W.O Ideal: Family, Company or Super Funds. Elderly Owner Retiring from very active life. Warrnambool Real Estate are the sole agents for this property.

FYI Drought area widened
A state of drought has been officially declared in the South Auckland, Waikato, Bay of Plenty and Hawkes Bay regions today by the Minister for Primary Industries Nathan Guy.
The area covered includes the Auckland Council area south of the Harbour Bridge, and all of the Waikato, Bay of Plenty and Hawkes Bay Regional Council areas – including Coromandel and Taupo.
“This is recognition that farmers across the North Island are facing extremely difficult conditions, and follows on from the announcement of drought in Northland last week.

FYI Westpac have increased their payout forecast:
"We have made the call to increase our 2012/13 season payout forecast from our earlier forecast of $6.00/kg to $6.10/kg. This compares to Fonterra's forecast (updated in February) for the 2012/13 season payout of $5.90-6.00 (for a 100% share-backed farmer). We have also increased our 2013/14 payout forecast by 20 cents to $6.40."

Yep - a higher payout to those that have not dried off the herd - what percentage of farms will face this dilemma?

Just FYI: 
                                                                         March 2011       March 2013         Diff
Average GDT auction price index in USD:         1.05                      0.96               -9.0%
USD/NZD Xrate:                                                  0.74                     0.84                14% 
Average GDT auction price index in NZD:         1.08                      0.87                -20%  
Note: base year Jul 2008
FX traders have mastered the skill of using high NZD/USD exchange rate to eat out farmers profits.

If it's any help to you Zing, your point, and its impact, was well and truly canvassed here on this site a year ago. You can research back through the archives. Fonterra has a Treasury department that is responsible for hedging it's currency exposure at all times. They are very good at it. A substantial amount of Fonterra's annual profit comes from Forex profits.

Thanks for the info.
USD/NZD 3m 6m and 12m forward XR all exceed 0.82. 
I guess that no matter how awesome the Tsy and the F's hegding strategies are, their effective XR cannot be as low as 0.74 anymore.
PLUS, who is Zing???????

Last Fridays USDA international dairy prices showed modest increases in Oceania but falls in Europe for butter, AMF, SMP, WMP and Whey Powder - all products reported.
Today's auction result shows exceptional price increases. That rarely happens without a reason.
Volume sold today is down 35% from the last auction in February, and down 11% from the first auction in March 2012. This auction had very low volume. Now that prices have been bumped up, volumes will increase.
Will prices stay up or drift down? We wait and see.

Actually volumes will stay down. We'll be dry next week, two months early and 15-20% down on where we should have been.

I don't disagree with you regards supply, but Fonterra has been suggesting NZ milk production will still be up 1% for the season.
Last year the first auction in March was the one with the lowest volume, and that may also be true this season.
So auction volumes must increase - probably sooner but possibly later - or Fonterra's inventory and debt will blow out.

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