Global dairy prices snap out of decline

Dairy prices rose at the latest global auction, snapping five consecutive declines, as buyers pay up for limited milk supply.

The Global Dairy Trade price index rose 4.9% to 1185 at the fortnightly auction.

Dairy prices have shed a quarter of their value after hitting record levels in March this year, as demand was dented by Covid-19 disruptions and worsening economic conditions around the world. However buyers appear to be returning to the market as global milk supply falls as adverse weather and higher costs crimp production.

‘‘It is too early to say the market has turned, but it is clear that the global dairy market is willing to chase product at current price points, and that demand is apparent,’’ said NZX dairy insights manager Stuart Davison. ‘‘This result should also be a clear signal too that some of the market are likely starting to price in an expected lack of milk supply.’’

Davison said he expects prices to continue to gain as European energy constraints and weak milk supply weigh on the market heading into the northern hemisphere winter, and Chinese demand rebounds following Covid-19 lockdowns.

The whole milk powder price index rose 5.1%, the largest increase since June. The average price rose to US$3610 (NZ$5858) a tonne. The anhydrous milk fat index jumped 14%, while butter rose 3.3%, skim milk powder gained 1.5% and cheddar advanced 1%. Buttermilk powder bucked the trend, falling 5.1%.

Global dairy prices set the price Fonterra and other processors pay farmers for their milk.

Last month, Fonterra pulled back its forecast for the current season which began in June to $8.50 to $10 per kilogram of milk solids. That reduced the midpoint of the range, which farmers are paid off, to $9.25 per kgms from $9.50 per kgms.

In a note last week, ANZ agriculture economist Susan Kilsby noted that Fonterra’s forecast range was wider than usual for this point in the season, reflecting the uncertain outlook.

‘‘This is not surprising, given the high levels of uncertainty both within the dairy markets and the wider global economy,’’ Kilsby said.

She said global dairy markets were finely balanced.

‘‘The rapid drop in global milk production is expected to tip the scales and push dairy commodity prices slightly higher in the coming months. But before the season is out we are likely to see pricing trend lower again as the deterioration in global economic conditions starts to impact demand for dairy products.’’