Fonterra's global dairy price lift best in two years

For the fifth consecutive fortnight, Fonterra's global dairy price auction has made gains, underpinned by a more than 8% boost to the critical whole milk powder price.

The 8.4% gain in the whole milk powder price, to $US3027 ($NZ4473) a tonne, was its biggest rise in more than two years.

On top of auction gains over December and January, the ASB has upgraded its Fonterra farm-gate milk price, boosting it by 25c to $6.25/kg of milk solids.

In early-December Fonterra revised downward its forecast to a range of $6 to $6.30 per kg from a previous forecast of $6.25-$6.50.

The overall price index rallied 6.7% from the previous auction.

ASB senior rural economist Nathan Penny said it appeared the global market was pricing in the risk of drought disrupting New Zealand production, in particular whole milk powder, of which New Zealand is the dominant exporter.

"However, there's some chance that these price gains prove temporary," Mr Penny said.
He said New Zealand production was on a strong footing, running at more than 5% ahead of last season.

"Also, it's still relatively early days in this dry spell, with a drought declaration some time away," Mr Penny said.

He described the overnight price gains as "significant" and coming on top of the "solid gains" over December and January, prompting ASB to lift its forecast by 25 cents to $6.25 per kg.

Offer volumes for whole milk powder were down on the previous auction, even though they were up 19% on the previous year, NZX dairy analyst Robert Gibson said in a note, BusinessDesk reported.

"Firm demand from Asian countries is likely to have helped to support prices," Mr Gibson said.

At the latest auction, rennet casein surged 10.9% to $US5596 a tonne, while anhydrous milk fat climbed 5.8% to $US5579 a tonne.

Butter rose 4.2% to $US4445 a tonne, while skim milk powder gained 3.9% to $US2534 a tonne.

"Skim milk powder offer volumes leading into this event were down on the previous event, but up on the previous year," Mr Gibson noted.

Cheddar added 1.4% to $US3565 a tonne, while lactose advanced 1.3% to $US1035 a tonne.

Bucking the trend, butter milk powder declined, sliding 3.1% to $US3158 a tonne.