Global dairy prices up on tight supply, strong Chinese demand

Global dairy prices rose for the second time this year at an auction held on Wednesday, consolidating farmers’ hopes of a recovery.

Average prices climbed 1.3 per cent at the Global Dairy Trade auction, which takes place twice a month, with an average selling price of US$3,537 per tonne.

The rise reflected tighter supply in New Zealand and Europe, which began pushing up prices last year.

Whole milk powder prices rose slightly by 1 per cent while butter rallied up 4.9 per cent on premium prices in the United States.

“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,” said Amy Van Ossenbruggen, analyst at NZX Agri.

“But production should begin to stabilise in the coming months, and this would see some pressure come off prices,” she added.

Strong demand from China even during the Lunar New Year holiday period should help underpin prices in coming months.

Dairy prices fell 3.9 per cent in the first auction of the year on January 3, but then edged higher a fortnight later.

Farmers and analysts had been nervous that a 50 per cent rebound in prices during 2016 after two years of falls could be temporary after the prices were dented at two auctions in the past three months.

Global Dairy Trade is owned by New Zealand co-operative Fonterra, but operates independently from the dairy giant. A number of companies, including Dairy America and Murray Goulburn, use the platform to sell milk powder and other dairy products.

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A total of 21,273 tonnes was sold at the latest auction, falling 3.4 per cent from the previous one.

The auction results can affect the New Zealand dollar as the dairy sector generates more than 7 per cent of the nation’s gross domestic product. The Kiwi edged down 0.1 per cent to US$0.7312 on Wednesday, after hitting a 12-week high the previous day on strong inflation data.

The auctions are held twice a month, with the next one scheduled for February 21.