New Zealand dairy product prices surge at latest GDT auction on tightening milk supply

New Zealand dairy product prices saw a surge in the benchmark dairy index at the latest GlobalDairyTrade auction with average selling prices up 11.4 percent to $3,327/tonne. Auction prices rose for the sixth time in seven auctions and the index is now at its highest level since July 2014.

The increase in the index was primarily driven by whole milk powder (WMP) with prices spiking a massive 20 percent during Tuesday’s event to almost $3,320/tonne.

There was a further decline in New Zealand production levels in the first half of October following the 2 percent decline in September. Last week Fonterra said it reduced its forecast milk volume for the 2016-17 season in New Zealand to 1,460 million kilograms of milk solids, 6.8 per cent below the volume collected last season.

"Dairy markets reacted sharply to tightening milk supply in New Zealand. This positive GDT result will put upward pressure on milk price forecasts," AgriHQ dairy analyst Susan Kilsby said in a note.

The sharp rise in dairy prices could sway the Reserve Bank of New Zealand (RBNZ) more towards holding rates. Expectations of further price rises, which would boost the overall economic outlook could dampen expectations of RBNZ rate cut amidst expectations that the RBNZ will cut interest rates again from record lows of 2.0 percent to help meet inflation targets.