Dairy prices up as much as 38% in US$ terms since lows, but high NZ$ hurts

International dairy prices rose again in the latest fortnight, figures from the United States Department of Agriculture show. In US dollar terms, the selling prices of dairy exports from Oceania have jumped by as much as 38% from their lows in the first four months of 2009. However, New Zealand exporters have been left reeling from the crunch of a rising New Zealand dollar, which is now up near 70 US cents, from below 50 US cents in March. The NZ dollar had been as high as 81 USc in March and April 2008. Economists and policy makers are looking for an export-led recovery to help New Zealand out of six consecutive quarters of negative GDP growth. However, the rising New Zealand dollar has put a huge dent in these hopes, with calls that the Reserve Bank of New Zealand (RBNZ) should cut the Official Cash Rate further from its record low of 2.5% to try and lower the stubborn currency.

RBNZ Governor Alan Bollard has had little luck in his attempts to talk the dollar down, prompting calls for him to take more action that just 'jawboning' in his attempts to influence the currency. The RBNZ's next OCR announcement is on September 10. Also somewhat ironically, a 26% jump in the price of whole milk powder at Fonterra's August internet auction spurred the NZ dollar up half a US cent on the good news. Average Oceania export prices for butter were US$2,250/tonne at September 3 and have risen 25% since their low of US$1,800/t in mid-April. However, in New Zealand dollar terms, prices have only risen 7.3% over the same period as the NZ$ strengthened against the US$. Exports of skim milk powder are now averaging US$2,275/t, up 30% from their February low. However in New Zealand dollar terms, skim milk powder prices have actually fallen 1.7% over this same period. Export prices of whole milk powder this week averaged US$2,550/t and are up 37.8% from their mid-February low. Prices are up 4.2% in New Zealand dollar terms since February. Finally, the average cheese export price this week was US$2,775/t. This was up 15.6% from their April low of US$2,400/t. In New Zealand dollar terms, prices were down 2.8% over this period. Prices have also risen for dairy exports from Western Europe since the beginning of the year, notably whole milk powder, which was up 30% to an average price of US$2,775/t this week from its low in mid-February. This European price premium over Australian and New Zealand whole milk powder prices is also mirrored by butter prices. Western European butter export prices averaged US$3,450/t on September 3 figures, well above the US$2,250/t average price Oceania butter exports attracted. The average export price of European skim milk powder was US$2,425/t, compared to Oceania's US$2,275/t.