Dairy prices up 1.2pc in Fonterra auction

Prices in Fonterra's latest online dairy auction have risen an average 1.2 per cent.

Of the four different products traded through the auction, butter milk powder prices were up 14.5 per cent, skim milk powder increased 2.4 per cent, whole milk powder was up 0.5 per cent, while anhydrous milk fat prices fell 0.3 per cent.

See auction details here.

Strong dairy prices have underpinned New Zealand's economic recovery over the past year, and Reserve Bank Governor Alan Bollard is banking on the primary sector to ramp up consumer spending once they've repaid outstanding debts and can take advantage of the high prices they're receiving.

The first auction of the year, held earlier this month, saw a 7.1 per cent average hike in prices. That average was pushed up by a 20.6 per cent increase in butter milk powder prices.

New Zealand-produced raw materials reached a record high last month as global demand for commodities was solid at the end of last year, according to the ANZ Commodity Price Index released last week.

The index rose 2 per cent to 302 in December, led by a 10 per cent gain in beef prices, and a 5 per cent increase in the price of skins.

Commodities have been well-supported in recent months as flooding in Queensland cuts international supply of wheat and coal.

"Strong commodity prices are a key crux of support to the economy,"
ANZ economist Steve Edwards said in his report.

"At present, the flow-on to the general economy is being curtailed by adverse weather conditions impacting volumes and a rural property market that remains under pressure."