Stu Davison, consultant with HighGround Dairy, said the strong auction was against his expectations, although futures market pricing was strong in the lead-up to the event.
“It was the exact opposite of what we expected them to do, which was good.
“The key driver here is China which stepped in and drove prices, which is a nice change.
“It’s a good vote of confidence in terms of China returning, but don’t get me wrong – I don’t think that they are back in full force,” Davison said.
Even so, he said participation from China – for this time of the year – was at its highest since 2013.
“The direction looks nice, but we are not out of the woods yet.”
Auction prices were nevertheless supportive of the current range from Fonterra which is for $6.00 - $7.50 per kg milk solids, with a midpoint of $6.75 per kg and well below Dairy NZ’s estimate of break even at $7.51/kg.
“It’s encouraging to see another sign that dairy prices might be finding a floor, but we remain cautious on the outlook,” ASB senior economist Chris Tennent-Brown said in a report.
“It was pleasing to see a return of Chinese demand at this event, and we will be watching this development at upcoming auctions,” he said.
Last night’s Global Dairy Trade event concluded with the GDT price index gaining 4.6 per cent.
Westpac agri economist Nathan Penny said that while the positive result was welcome, global dairy prices remain low.
“With that in mind, it’s difficult to judge yet whether prices have turned a corner.
“To make that call we will need to see further price lifts over October and into November,” Penny said.
“Indeed, the recent price rises may have more to do with the fact that low prices have brought buyers back to the market rather than any fundamental change or improvement in global dairy demand.”
Looking ahead, the strength or otherwise of New Zealand spring production had the potential to provide fresh direction to prices over the coming months.
At the same time, analysts will continue to monitor developments in China for signs of a pickup in dairy demand.
“For now, there have been few developments of note. As a result, we continue to expect that demand will not improve until late 2023 at the earliest, but more likely in the new year,” Penny said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
