Bank expects dairy auction prices will continue to firm

Dairy product prices are trending higher. Picture / Alan Gibson

ANZ said it expects dairy prices to continue this year's firming trend at tomorrow's GlobalDairyTrade auction.

The bank said expectations were "fairly high" following the market's reaction to the news from Fonterra that 42 per cent less wholemilk powder is to be offered over the February to July period.

"This week the volumes on offer are unchanged from the previous forecast, but with Fonterra's daily milk volumes tracking ever lower, buyers will fear further cuts as the season draws to a close," ANZ said.

In recent weeks there have also been an increasing number of reports of slowing milk growth from other exporting regions as lower farm-gate prices have started to bite.

This has seen global milk supply slow to its medium-term trend of 1.9 per cent growth, implying a further 20-25 per cent rise in GDT prices over the next few months.

"Such a result would be enough to deliver Fonterra's current milk price forecast of $4.70/kg and potentially sets a higher starting point for the 2015/16 outlook," ANZ said.

Fonterra is expected to provide an update to the milk price late this month after its next board meeting.

At the last auction on February 4, prices spiked higher, with the GDT price index gaining 9.4 per cent on the previous sale on January 21. Whole milk powder prices, the most important product group for New Zealand farmers, jumped by 19.2 per cent to US$2874 a tonne.