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Source: ONE News -
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The spike in prices is extremely encouraging for the New Zealand economy.
Whilst it is early days, and the auction can be volatile, the price suggests that the recent improvement in demand for commodities globally is going to benefit New Zealand.
Only last week the Reserve Bank warned that New Zealand was at risk of missing out on a recovery in the recovery in commodities because soft commodities, i.e. milk, were not part of the rebound.
It wasn't surprising to see the Kiwi dollar surge on the news. Dairy makes up about a quarter of New Zealand's export revenue and is the biggest exporter of dairy products in the world, so when Fonterra's auction moves people take notice.
The size of the jump suggests that a recovery could be under way in dairy, and this will hugely benefit the New Zealand economy over the medium term.
The auction results will be a relief to dairy farmers who are fretting about future payouts that prices seem to be going in the right direction again.
It is problematic, of course, because the stronger Kiwi will also curb Fonterra's profits, particularly if the Kiwi continues heading for 70 US cents.
Twenty-four hours ago the 70 US cent mark didn't make sense to a lot of people, but, given Wednesday's auction price it seems a bit more understandable from an international investor's perspective.
