Trading lift boosts spending hopes
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.