A hefty rise in global dairy prices will see the Kiwi dollar push higher as demand for New Zealand’s main export commodity remains strong.
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Dairy commodity prices jumped 3.9% at the Global Dairy Trade (GDT) event overnight, with whole milk powder (WMP) lifting 3.1%.

Dairy commodity prices jumped 3.9% at the Global Dairy Trade (GDT) event overnight, with whole milk powder (WMP) lifting 3.1% and skim milk powder (SMP) up 4.1%.

“Dairy commodities have started 2021 with a bang,” NZX senior dairy analyst Amy Castleton said.

“This whole milk powder price is higher than any result seen at GDT through 2020. Strong demand across all contract periods shows that buyers have been willing to pay more to secure supply,” she said.

Not only that, but a solid rise in fat prices, like butter, “shows that the global foodservice sector is expecting to be churning back into action over the coming months,” she said.

Butter prices lifted 7.2%.

Any recovery in the global foodservice sector – hard hit by ongoing lockdowns – bodes well for a raft of NZ exports, not just dairy.

The New Zealand dollar (NZD) was trading at 72.60 US cents at 8am in Wellington versus 72.08 US cents at 5pm on Tuesday.

The ongoing demand for dairy products will likely spur interest in a2 Milk, Synlait Milk and units in the Fonterra Shareholders’ Fund, although the high NZD will temper any enthusiasm as it makes export products less competitive on the global stage.

Fisher & Paykel Healthcare could also see some selling, given the strength of the local currency.

Meanwhile, investors will continue to keep one eye on the Senate runoff elections in the US battleground state of Georgia.

According to Reuters, the latest polls from data website 538 gave a slight edge to the two Democratic challengers who need to win both races for Democrats to gain Senate control from Republicans.

The World Bank this week said the global economy is expected to grow 4% this year after contracting 4.3% in 2020. That 2021 projection is 0.2 percentage points lower than its forecast last June.

The 4% expansion means global economic output is expected to remain “more than 5% below pre-pandemic projections,” it said.

It also noted that “downside risks to this baseline predominate, including the possibility of a further increase in the spread of the virus, delays in vaccine procurement and distribution, more severe and longer-lasting effects on potential output from the pandemic, and financial stress triggered by high debt levels and weak growth.”

Last month, 14 of our dairy farms in Maine, as well as dozens of dairy farms across northern New England, got an unexpected and disappointing notice from Danone of North America saying that they were discontinuing their contracts with our organic dairy farmers in Maine, New Hampshire, Vermont and elsewhere.

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