'Choppy' milk prices expected

Dairy prices are expected to be ''choppy'' over coming GlobalDairyTrade auctions as markets wait for confirmation of weak New Zealand production, economists say.

A modest 1.4% increase was posted in this week's GDT auction with mixed results for the products on offer.

Whole milk powder prices rose 2.9%, skim milk powder prices were broadly flat and anhydrous milk fat and butter prices were up 1.1% and 2.6% respectively.

Fonterra's announcement that it would reduce the amount of product on offer due to recent wet weather was an important catalyst for the lift, Westpac senior economist Anne Boniface said.

Rain reduced milk collection in some regions, most notably Waikato, where October volumes were running 10% below the same period last year.

That meant Fonterra offered about 5% less whole milk powder in this week's auction than it had previously signalled. It also expected to offer less product in forthcoming auctions.

ASB senior rural economist Nathan Penny said it appeared dairy markets were not yet convinced production had fallen as hard as Fonterra described.

In light of the volume reductions before the auction, the auction price lift was small, he said.

ASB had forecast a 5% nationwide production decline compared with last season and, on that basis, expected dairy prices to keep rising over the season.

''Dairy markets, however, need a little more convincing. While markets appreciate that a drought can stunt production, wet weather hurting production is a harder sell,'' Mr Penny said.

The bank expected markets would wait for data to confirm weak production before bidding prices higher again.