Surging Milk Prices Add to Case for N.Z. Commodity-Led Recovery
Surging Milk Prices Add to Case for N.Z. Commodity-Led Recov
Brendon O'Hagan/Bloomberg
Whole milk powder prices rose to an eight-month high, adding to signs that demand for one of New Zealand’s biggest commodity exports will underpin an economic recovery this year.
Whole milk powder prices rose to an eight-month high, adding to signs that demand for one of New Zealand’s biggest commodity exports will underpin an economic recovery this year. Photographer: Brendon O'Hagan/Bloomberg
Whole milk powder prices rose to an eight-month high, adding to signs that demand for one of New Zealand’s biggest commodity exports will underpin an economic recovery this year.
Powder prices gained 7.6 percent from two weeks earlier, reaching the highest since June 1, according to auction results published today by Fonterra Cooperative Group Ltd., the world’s largest dairy exporter. A broader index of 17 export commodities rose for a fifth straight month in January to a record, ANZ National Bank Ltd. said yesterday.
New Zealand’s dollar climbed to the highest this year as traders bet stronger exports, which make up 30 percent of the economy, will prompt the central bank to raise interest rates later this year. Reserve Bank Governor Alan Bollard last week said he expected higher overseas sales of milk, meat and lumber will boost incomes and spending.
“Rising commodity prices, terms of trade and decent trading partner growth are the fundamentals that suggest we ought to be able to generate modest growth” this year, Robin Clements, chief New Zealand economist at UBS AG, said in an interview from Christchurch. “If farmers perceive this to be brief and fleeting they will bank the bonus. The longer it persists the more likely that they are going to spend.”
The currency traded near the highest level since November, buying 78.06 U.S. cents at 11:36 a.m. in Wellington from 77.56 cents in late Tokyo trading yesterday.
‘Strong’ Support
“Rising commodity prices certainly portend a strong fundamental support for the New Zealand dollar,” Mike Jones, currency strategist at Bank of New Zealand said in a telephone interview. “That’s something we expect to support a generally rising trend to the middle of this year.”
Bollard last month kept the benchmark interest rate unchanged at 3 percent and said it would be “prudent” to wait for stronger growth before raising borrowing costs. Five of 12 economists surveyed by Bloomberg News expect an increase in June. Seven forecast the first move in the third quarter.
The ANZ Commodity Price Index gained 3.8 percent from December, when it increased 2 percent, Wellington-based ANZ National said in an e-mailed report yesterday.
Average milk powder prices for delivery in April rose to $3,794 a ton, according to the results of Auckland-based Fonterra’s latest GlobalDairyTrade auction.
Prices have risen 13 percent since Dec. 1 amid increasing demand from Asian buyers and as New Zealand declared droughts in Northland and in the Waikato province, which is the nation’s biggest milk-producing region.
Higher Payments
On Dec. 10, Fonterra, which accounts for about 40 percent of the global trade in butter, milk powder and cheese, raised its forecast payment to farmers by 4.5 percent, citing international prices.
Fonterra sells whole and skim milk powder and dried milk fat at its fortnightly Internet-based auctions. It offers one- month contracts with delivery starting two months after the sale, and two three-month contracts with delivery starting three and six months later.
Whole milk powder for delivery from May through July rose 5.5 percent, Fonterra said. Powder for shipment from August through October increased 0.5 percent. Across all contracts prices gained 5.7 percent.
Concerns that New Zealand’s North Island may fall further into drought have eased after significant rainfall in the last month, Agriculture Minister David Carter said Jan. 25. The impact won’t be as severe as first thought in December, when some provinces -- including Waikato, the nation’s biggest milk- producing region -- were declared medium-level drought zones.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
To contact the editor responsible for this story: Iain Wilson iwilson2@bloomberg.net.
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