Shrinking New Zealand milk production has seen global dairy prices surge for the third straight rise this year, lifting them to their highest level for four months.
Dairy prices have risen at the overnight Global Dairy Trade (GDT) auction, making all of the moves positive for the year so far.
The overall index was up 5.9 per cent to US$3553, following rises of 2.2 per cent and 4.9 per cent in January. It is now at its highest point since early October.
The price of whole milk powder (WMP) was up 7.6 per cent and cheddar 7.2 per cent. Butter continued its recent upward momentum, rising 7.9 per cent, following on from an 8.8 per cent increase last auction.
Federated Farmers dairy group chairman Chris Lewis said farmers would be breathing a sigh of relief at the good news, considering global share market pessimism.
However while prices had lifted, the recent rise in the New Zealand dollar against the US had nullified the gains.
“The dollar has come up to its highest since May last year, so while we have made gains at auction, we’ve lost ground.”
However, Westpac does not expect the upward trend to persist as the year progresses, due to the fact the US Federal Reserve will hike interest rates, while the RBNZ remains firmly on hold.
Lewis said recent rain had helped matters to an extent, but was not reflected in an improvement in production.
“My cows are well fed but they are just not putting it into the milk vat. It’s not the premium quality grass we’ve had in the past.”
Fonterra reported December milk production was 4.6 per cent behind December 2016.
ASB economist Nathan predicted production would lift following rain over the last month, and come out higher than Fonterra’s projection of a minus 3 per cent growth forecast for the total season. As a result some of the price strength would be temporary.
Penny said the latest GDT result reaffirmed the bank’s 2017-18 milk price forecast of $6.50 per kilogram of milksolids. Fonterra’s forecast sits at $6.40 (minus the dividend).
Lewis said it would be interesting to see what would happen to prices of skim milk powder, which were up 7.2 per cent.
The shelf life of the huge stockpile built up in Europe was near expiry and product would have to be sold soon or it would be good only for stock feed.
AgriHQ said buyers seemed to be “more nervous that they will not be able to fulfil their requirements if New Zealand milk production continues to fall. There were a few more winning bidders from North Asia at the February 6 event than at the January 16 event, and more product was sold to this region.”
A total of 22,197 tonnes of product was sold at the overnight auction, down from 23,319 tonnes three weeks ago.