Dairy prices up 2.4pc in overnight auction

Dairy prices in Fonterra's latest online auction are up 2.4 per cent.

That price is the average across the four different products traded through the online auction platform.

Whole milk powder prices were up 2.6 per cent, while skim milk powder prices rose 2.5 per cent. Butter milk powder was the only one of the product groups traded that fell in price, dropping 0.7 per cent.

Higher world dairy prices were behind Fonterra's decision last week to raise its farmer payout for the 2010/11 season by 30c to $7.30-$7.40 per kg of milksolids before any retentions.

A $7.40 per kg payout based on stable production could be worth about $9.5 billion.

Chairman Sir Henry van der Heyden said the increased forecast milk price reflected continued high international dairy prices further into the season.

The new forecast comprised an increased milk price of $6.90 per kg of milksolids and an unchanged distributable profit of 40-50c a share.

Chief executive Andrew Ferrier said that international dairy market prices had generally held up better than initially expected when the company made its opening forecast in May.

A report put out by the New Zealand Institute of Economic Research earlier this month said that more than $1 billion is pumped into the economy every time Fonterra boosts its payout to farmers by $1.

NZIER deputy chief executive John Ballingall said modelling showed the sector had delivered significant and ongoing benefits.

"Its influence extends well beyond its direct impacts in dairying areas, with the sector closely intertwined with the rest of the economy," Ballingall said.

"That includes the jobs it delivers, the income that these workers earn, its links to supply firms, the effects of rural economic growth on urban centres and the tax revenue it provides to fund public services."

The dairy sector accounted for 2.8 per cent of gross domestic product, equivalent to $5 billion, and employed 35,000 people (excluding self-employed), the report said.

-HERALD ONLINE