Dairy prices hit their highest level in nearly seven years in the global auction overnight.
The average price leapt 3 percent to $US3746 a tonne, compared to a 1.8 percent rise at the last auction two weeks ago. Prices have increased over the last seven auctions and are now the highest since April 2014.
The price of wholemilk powder, which strongly influences the payouts for local farmers, increased 4.3 percent to $US3615 a tonne at the latest auction.
Agfirst economist Phil Journeaux said the successive rises would let dairy companies increase their payout and farms would show a very healthy profit.
“Back at the start of the season in July, we were budgeting it at a $6.40 payout, we’re now looking at a $7.20 payment … that gives an extra $82,000 of income for our Waikato/Bay of Plenty model farm,” Journeaux said.
“The increased profitability gives farmers confidence to keep on doing what they’re doing, on the other hand it also gives them that increased income to meet some of these environmental costs that are coming up in terms of both water and climate change.”
However, Journeaux warned that while today’s result was good, no-one should get carried away as next year’s exchange rate was a big danger.
“Fonterra hedges forward very well but, inevitably, the exchange rate will improve for next year,” he said.
Westpac agriculture economist Nathan Penny said he expected more strong dairy prices in the short-term that would moderate out later this year.
Taranaki sharemilker Matthew Herbert said this season was shaping up to be a cracker, and the latest GDT result was the icing on the cake.
“I’m happy as Larry this season. It’s not very often you get a good grass growing season lining up with a good payout,” Herbert said.
“Stoked with this morning’s result. It’s kind of just whatever the opposite of a nail in the coffin is, it’s kind of locking in a really good thing. It gives us a lot of confidence moving forward with milk price.”
He said the extra money gave some assurance towards paying down debt and other costs that had been put to the side.
Other product prices were higher across the board, with solid rises for cheese and butter.
The butter price rose 2 percent on average to $US5129 a tonne, and cheddar jumped 2.4 percent up to $US4268 a tonne.