Dairy prices strengthen, helped by slow New Zealand production

(Agrimoney) – Prices at the GlobalDairyTrade auction have gained, for the first time in two months.

Dairy prices on the auction platform, which is run by New Zealand milk giant Fonterra, rose 3.6%, compared to the last trading event held 2 weeks ago.

Whole milk powder, the most widely traded commodity on the platform, rose 5.3%, while skim milk powder prices rose 3.2%.

This is the first time that prices on the platform have risen since the beginning of October.

Futures market predicts recovery

Before the start of the auction, Tobin Gorey of CBA saw the New Zealand dairy futures market pointing to a price rise of 1-5%.

“Futures were pricing in a bit of a recovery,” agreed Kyle Schrad, of FC Stone.

“All in all this was probably a result that was mostly expected,” he said, adding “I think it will be interesting to see futures prices react on this news… we’re expecting a bit more bounce”.

New Zealand slump

Mr Schrad pointed to data out this week, which saw New Zealand milk production down 2.7% in October of this year, compared to last year, at the time when output usually sees its seasonal peak.

The slump in milk prices has hit production in the world’s biggest dairy exporter, as lower margins force farmers to tighten their belts, including killing off herds.

“Without question that is part of why we saw a little pop in prices,” Mr Schrad said.

Eyes on Europe

Mr Schrad said that production in Europe was now key to international commodity milk prices.

“Europe has been so strong coming off the end of quotas,” he said.

The EU lifted quotas on milk production earlier this year, and farm gate prices for milk have stayed relatively strong compared to New Zealand, allowing farmers to keep production healthy at a time of bottoming prices.