Dairy prices start 2026 with 6.3% rally at GDT auction

Fonterra's farmers have something to cheer about thanks to a big spike in milk powder prices. Photo / 123RF

Dairy prices kicked off the new year with a 6.3% gain at this morning’s Global Dairy Trade auction, buoyed by unexpectedly strong buying from the Middle East.

While the strong auction partly reversed the weakness seen towards the latter part of 2025, NZX’s head of dairy insights, Cristina Alvarado, said it was too early to assess whether the market had turned the corner.

However, she pointed out that milk price futures had been strong going into the auction and she expected the market to rally further from here.

The two main reference products used by Fonterra to “inform” its farmgate milk price – whole milk powder (WMP) and skim milk powder (SMP) – were both sharply higher.

WMP prices, which had been heading sharply lower since hitting US$4354/tonne in May last year, clawed back some ground with a 7.2% gain to US$3407/tonne.

Likewise SMP, which had also been under pressure over the second half of last year, jumped by 5.4% to US$2564/tonne.

While price increases had been anticipated following signals from the GDT “pulse” auction – held between the main twice-monthly auctions – and from the derivatives market, the magnitude of the move “materially exceeded expectations”, Alvarado said in a report.

Total volumes offered declined from the previous event, consistent with New Zealand milk production moving past the sesonal peak.

“The combination of lower available supply and a broad improvement in regional participation pushed prices higher across all commodities offered,” she said.

Buying activity increased across most regions, with only North Asia and North America reducing their share compared with the last auction in December.

North Asia remained the dominant buyer overall, accounting for 44% of total volumes sold, down from 58% at the prior event.

The most notable shift came from the Middle East, where buying share nearly doubled from 11% to 21%, Alvarado said.

This region emerged as the second-largest buyer of WMP and was a key contributor to the 7.2% lift in the WMP price index.

She said the auction reinforced the sensitivity of prices to shifts in regional demand when platform volumes tighten.

“While hand-to-mouth buying behaviour remains evident, the strength and breadth of this event highlight that latent demand can re-emerge quickly when availability declines, amplifying price responses across the GDT complex,” she said.

Alvarado told the Herald it was too early to tell if the market had turned.

“I think we’ll have to wait for next event to see how that one goes, but it is good to see that there is definitely demand there,” she said.

“We do need to take into account that there was less volume offered in this event, and there will be less as well in the next one as we start to head down in the lower side of the season.

“So even if we don’t see them going up much again, I would expect to at least see prices to flatten and not keep dropping as sharply as they were doing before.”

Milk production in New Zealand, and nearly all the main dairy producing countries, has been very strong.

Alvarado expected domestic production to remain high going into the tail end of the season even for those regions that have not had the best weather.

“There is a lot of supplement being used because margins are still good and costs are still being kept at bay,” she said.

Fonterra last month cut its forecast range for 2025/26 to a midpoint of $9 per kg of milk solids from $9.50/kg, reflecting the impact that strong production was having on prices.

Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.

• Listen and subscribe to the Today in Business podcast – the top headlines from the NZ Herald business team summarised and delivered by an artificial intelligence (AI) voice as an easily digestible recap.