Dairy prices slip 3.8pc at auction

Dairy prices eased in the overnight global auction on Tuesday following a surge higher at the previous event, although prices remain elevated amid strong demand.

The global dairy trade price index fell 3.8 per cent. The price of whole milk powder, which has the most impact on what farmers are paid, dropped 6.2 per cent to an average US$4083 a tonne.

The pullback follows a 15 per cent jump in average prices and a 21 per cent rise in the price of whole milk powder at the previous auction two weeks ago. The GDT price index has risen rapidly since November last year, gaining 36 per cent.

‘‘Whilst not as exciting as the previous GDT event, this auction has sent some strong signals for the industry on the whole,’’ NZX senior analyst Amy Castleton said. ‘‘There is little doubt now that whole milk powder prices will remain elevated for the short term with this level of demand being shown.’’

She noted that whole milk powder prices remained above

US$4000/t even with increased volumes. The latest auction confirms strong demand for whole milk powder, particularly from North Asia, with 98 per cent of the product on offer being sold.

Westpac senior agri economist Nathan Penny said the latest auction result didn’t change the overall dairy market picture. ‘‘Dairy markets remain tight, with high prices a function of demand outstripping supply.’’

Prices are likely to remain around current levels over the next few months, albeit with some volatility, then moderate as New Zealand production picks up in spring, he said. ‘‘However, with the global supply response likely to be moderate and ongoing solid global demand, we expect global dairy prices to remain firm over the 2021/22 season as a whole.’’

Fonterra chief executive Miles Hurrell yesterday reaffirmed the co-operative’s forecast milk price for farmers this season of between $7.30 and $7.90 per kilogram of milk solids, putting it on track for its second highest milk price to date, which would contribute an estimated $11.5 billion to the economy. Westpac expects Fonterra to pay $7.90 per kg this season, and $7.25 per kg next season.

The co-operative is seeing strong demand from China as Asia’s largest economy recovers from Covid-19.

‘‘Dairy markets remain tight, with high prices a function of demand outstripping supply.’’ Nathan Penny

Westpac senior agri economist