Trad­ing lift boosts spend­ing hopes

South Waikato News - - RURAL -

Dairy prod­ucts are trad­ing close to record prices, boost­ing New Zealand shares and eco­nomic hopes on the first day of trad­ing for 2011.

Fon­terra’s lat­est on­line auc­tion, held last Wed­nes­day, re­flected a sharp rise in sales prices with the global Dairy­Trade trade-weighted in­dex jump­ing 7.1 per cent over the last fort­night.

The in­dex, which mea­sures a range of bulk dairy prod­ucts, saw an av­er­age win­ning price of US$3908 (NZ$5088) a tonne in the lat­est auc­tion, up from US$3690 in midDe­cem­ber.

The in­dex is now at the high­est level since Septem­ber and just 3.5 per cent be­low the pre­vi­ous high of April 2010.

Ris­ing dairy prod­uct prices came as the wider com­mod­ity sec­tor plunged, with the price of oil drop­ping in New York, fall­ing from the high­est level since 2008 as traders took prof­its fol­low­ing re­cent gains that have seen pump prices jump.

The auc­tion re­sults were cred­ited with help­ing boost shares on the NZX, with the NZX 50 clos­ing up 15.96 points at 3324.99.

The for­tunes of the dairy sec­tor are a key in­di­ca­tor of New Zealand’s eco­nomic per­for­mance. In De­cem­ber a re­port by the New Zealand In­sti­tute of Eco­nomic Re­search found that a $1 in­crease in Fon­terra’s an­nual pay­out for each kilo­gram of milk­solids in­creased the av­er­age an­nual in­come of ev­ery New Zealan­der by $270.

Fon­terra’s Glob­alDairyTrade man­ager Paul Grave said com­mod­ity mar­kets were driven by sen­ti­ment and the dec­la­ra­tion of droughts in the North Is­land in De­cem­ber may have prompted in­vestors to buy sup­plies fur­ther ahead than usual but the gen­eral sen­ti­ment for food prod­ucts re­mained pos­i­tive.

‘‘ The fun­da­men­tals are strong and well sup­ported by de­mand from de­vel­op­ing coun­tries, the Chi­nas, the In­dias and the likes of the Mid­dle East.’’

Last month Fon­terra lifted its pay­ment fore­cast to dairy farm­ers by 4.5 per cent, cit­ing a rise in in­ter­na­tional prices.

West­pac se­nior econ­o­mist Dominick Stephens pre­dicted ‘‘ ex­cel­lent’’ farm gate re­turns in 2011 and while the Re­serve Bank ex­pected the ru­ral sec­tor would con­tinue to pay down debt, West­pac pre­dicted farm­ers would be­gin to open their wal­lets.

‘‘We ex­pect farm­ers to spend more freely than they did in 2010, al­though no­body is talk­ing about a re­turn to the heady spend­ing of last decade.

‘‘ That will be a fur­ther boost for the econ­omy,’’ he said.

Strong re­turns from agri­cul­ture, as well as a bet­ter-than-ex­pected hous­ing mar­ket, the re­con­struc­tion ef­fort in Can­ter­bury fol­low­ing the earth­quake and a boost from the Rugby World Cup, could prompt the Re­serve Bank to raise in­ter­est rates sooner than ex­pected, Mr Stephens said.

ASB chief econ­o­mist Nick Tuf­fley said the auc­tion re­sults were pos­i­tive, fol­low­ing a pro­longed pe­riod of sta­ble com­mod­ity prices but the in­flu­ence of the drought and the tim­ing of the auc­tion over the quiet sum­mer pe­riod made it dif­fi­cult to know whether the in­crease could be sus­tained. Do­min­ion Post

GOOD NEWS: Fon­terra’s lat­est on­line auc­tion has at­tracted near record prices.

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