Dairy prices shot up by 4.9 per cent at this morning's GlobalDairyTrade (GDT) auction, with gains spread across all the products on offer.

Whole milk powder prices, which have the greatest bearing on Fonterra's farmgate milk price, sold at an average US$3010 a tonne, up 5.1 per cent since the last sale on January 3.

Prices for the other so-called "reference" products were also stronger, with
skim milk powder gaining 6.5 per cent to US$1818/tonne, butter rising by 8.8 per cent to US$4897 tonne and anhydrous milk fat prices rising by 2.2 per cent to US$6547/tonne.

Elsewhere, cheddar gained by 5.2 per cent to US$3486/tonne and rennet casein by 5.5 per cent to US$4709/tonne.


Mike McIntyre, head of derivatives at First NZ Capital, said the auction, which built on a firm outcome at the first sale of 2018, was a "fantastic" result for farmers who are facing difficult weather conditions.

He said buyers' procurement decisions were no doubt influenced by Tuesday's announcement from Fonterra that there had been a "significant" 6 per cent decline in milk production over December month, compared with the same month a year earlier.

However, working against farmers was the stronger New Zealand dollar, which has risen from US68c last November to around US72.7c today, he said.

On Tuesday, Fonterra said wet weather early this month had helped some regions but further rain in the next few weeks would be needed to see any recovery in production, particularly in Waikato, Taranaki and Central Districts, the co-operative said.

"Dry weather in early December significantly impacted soil moisture and pasture quality across the country," Fonterra said.

"While the recent wet conditions have helped in some regions, it is unlikely to be enough to bring production back to previously anticipated levels," it said.

In December, Fonterra reduced its forecast farmgate milk price for the 2017/18 season from $6.75 to $6.40 per kg of milk solids, at the time reflecting a near 10 per cent drop in whole milk powder prices since August 1.

Fonterra reviews its milk price every three months, although it can alter the forecast within that time frame if market conditions dictate.


The average price per tonne paid a the auction came to US$3310 from US$3124 at the last sale.