Dairy prices surge despite heat
Global dairy prices have made their biggest jump in more than two years.
The GDT index rose 6.7 per cent last week, a fifth consecutive rise and the biggest spike since November 2016. The increase took average prices to US$3265 a tonne and was driven by an 8.4 per cent lift in the price of whole milk powder (WMP).
ASB senior rural economist Nathan Penny said the heatwave recently experienced in some of New Zealand’s key dairying areas could have played a part.
There was a risk dry conditions could escalate into a drought and effect production over late summer and into autumn, he said.
‘‘On the surface, it appears that dairy markets are pricing in the risk of drought disrupting New Zealand production.
‘‘In particular, the move higher in WMP prices – New Zealand is the dominant WMP exporter – indicates that markets are factoring in a New Zealandspecific risk.’’
However, the price rises could be temporary as production was running at more than 5 per cent ahead of last season and drought was not a certainty, he said.
‘‘Most farmers are still wellplaced with ample feed on hand from earlier in the season.
‘‘However, when cows suffer from heat stress their appetites fall and there is little farmers can do.’’
NZX dairy analyst Robert Gibson said firm demand from Asia was also likely to have helped support prices. ‘‘Skim milk powder (SMP) prices at February 6 GDT lifted 3.9 percent on the previous event to US$2,534. SMP offer volumes leading into this event were down on the previous event, but up on the previous year.’’
On the back of the latest increase, ASB lifted its 2018/19 Fonterra milk price forecast by 25 cents to $6.25 per kilogram of milksolids.
There was a risk dry conditions could escalate into a drought and effect production over late summer and into autumn.