Dairy prices up 7.1%

NZPA

Wednesday 5th January 2011

Dairy commodity prices surged at Fonterra's overnight online auction, with the globalDairyTrade trade weighted index rising 7.1 percent, with the average winning price up to $US3908 ($NZ5088) from $US3690 in mid-December.

For anhydrous milk fat, the trade weighted price rose 10.6 percent to $US5984, butter milk powder rose 20.6 percent to $US3390, skim milk powder lifted 10.9 percent to $US3492, and whole milk powder gained 3.8 percent to $US3750.

BNZ currency strategist Mike Jones said the rise in dairy prices had carried on a theme of commodity price strength over the holiday period. The Fonterra auction prices were now just 3.5 percent below the April 2010 peak.

Reuters reported that commodity prices actually "crumbled" overnight, falling by their most in eight weeks, as energy, metals and agricultural investors took profit on the heady gains made on thin holiday volume during the past two weeks.

With the absence of any major catalyst for risk aversion the correction seemed triggered at least in part by investor unease that prices had moved up too fast on too little trade.

But Evan Smith, co-manager at the $US850 million commodities-based Global Resources Fund at US Global Investors said the "growth story" in commodities, which had fueled a near tripling in oil prices since the worst of the recession and led to a broad recovery in almost all other markets, had not changed.

"The global economy seems to be picking up. The supply issues haven't gone away for copper or even coal out of Australia. So, I don't think we're seeing a turning point in the market for commodities right now."

Crude oil settled 2.4 percent lower while soybeans dipped 1 percent, both having hit their highest since mid-2008 over the last week.

Soft commodities plunged as a group, with raw sugar the outlier, losing 3.5 percent. In other niche commodities, silver dominated falls, shedding 5 percent after scaling 30-year highs just a week ago.

Activity across all markets picked up dramatically as traders returned from holiday, with volume at mid-session already in excess of any day over the past two weeks.

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