Global dairy prices jump at New Zealand’s latest GDT price auction; production likely to end season down 3-4 pct

Global dairy prices jumped at New Zealand’s latest GlobalDairyTrade price auction held later Tuesday, finding some stability over the past month.

Dairy prices rose 1.3 percent, following the 0.6 percent gain in the previous auction. Within last night’s move, whole milk powder prices rose 1 percent to USD3,314/tonne, while fat-based products continued to outperform.

Further, AMF and butter prices rose 4 and 4.9 percent respectively. This took AMF to levels last seen in 2011. Meanwhile, skim milk powder prices were broadly stable at USD2,608/tonne. After falling away a bit through December, buyer interest out of China has improved this year. The fact that it held up in this auction that coincided with the Chinese New Year, provides a positive signal for demand ahead.

Moreover, tight global supply remains an important factor underpinning prices at these levels, with production in most major exporting regions continuing to decline on a year-on-year basis. But production should begin to stabilize in the coming months, and this would see some pressure come off prices, Westpac reported in its latest publication.

However, New Zealand’s milk production was down 3.6 percent in the 7 months to December, but the pace of decline had eased moving into 2017.

"We expect production to end the season down 3-4 percent, although rapidly drying conditions in some parts of the North Island could see a sharp end to the season in some regions. We remain comfortable with our forecast of a USD6.20 farm gate milk price this season," the report said.

Meanwhile, the NZX 50 index closed 0.01 percent lower at 7,066.27 at 06:00GMT, and at 05:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 22.90 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex