Shortages lead to spike in butter prices

Fresh record highs are expected over the winter months. Photo / File

Butter prices are spiking higher as a global shortage becomes acute and fresh record highs are expected over the winter months.

In a note after this week's GlobalDairyTrade (GDT) auction, ASB senior rural economist Nathan Penny said butter prices had spiked by about 30 per cent so far this year and were only 4 per cent below the record levels back in September last year.

The final GDT event for the 2017-18 production season saw overall dairy prices lift 1.9 per cent.

Anhydrous milk fat prices jumped 5.8 per cent while butter prices rose 2.4 per cent.

Rabobank dairy analyst Emma Higgins said Europe was short on fats with a delay in spring production, so low volume was helpful for Oceania price support.

It was moving into the quieter months for New Zealand production and therefore fresh product for the auction platform.

Any major price movements would be influenced by the urgency of buyers looking to obtain product prior to the new season, Higgins said.

Penny said there was clear potential for the bank's milk price forecasts to move higher.

While the sharp move lower in the New Zealand dollar could potentially reverse, it was more confident that butter prices would rise further and potentially take other key dairy prices like whole milk powder with it.

Fonterra was due to announce its opening 2018-19 milk price forecast next week and ASB expected it to front foot the new season with a healthy forecast of $6.50 or better.

With the 2017-18 season coming to close at the end of May, Westpac senior economist Anne Boniface said Fonterra's $6.55 forecast for that season was unlikely to change significantly in the final wash-up.

A feature of the season had been the remarkable stability in dairy prices.