Dairy product prices increase amid outlook for lower supply

Last week Fonterra announced that it now expects its milk intakes for the 2017-18 season to be about 4 per cent lower than last season. Photo / 123RF

Dairy product prices rose at the Global Dairy Trade auction, as whole milk powder increased on the outlook for reduced supply from Fonterra, the world's top dairy exporter.

The GDT price index rose 2.2 per cent from the previous auction two weeks ago to US$3,124 ($4,393). Some 25,400 tonnes of product was sold, down from 29,592 tonnes two weeks ago.

Whole milk powder rallied 4.2 per cent to US$2,886 ($4,059) a tonne.

"Last week Fonterra announced that it now expects its milk intakes for the 2017-18 season to be about 4 per cent lower than last season as dry conditions limit pasture production," Amy Castleton, AgriHQ dairy analyst, said in a note.

"It also advised that it had started to reduce the volume of whole milk powder (WMP) available on the GDT platform in response to the lower outlook for its milk supply."

"The reduction in the volume of WMP available at this auction and subsequent GDT events led the market to believe a substantial lift in price would occur," Castleton said, adding that the NZX Dairy Derivatives market had closed for the New Year holiday period before Fonterra advised the cut in its milk production forecast.

"The direction of the price movement was aligned with market expectations although the lift in the price of regular grade WMP for March delivery of 3.5 per cent was well below the 6 per cent anticipated by NZX Dairy Derivatives market participants," according to Castleton.

At the latest GDT auction, skim milk powder gained 1.6 per cent to US$1,699 ($2,389) a tonne, while butter rose 0.6 per cent to US$4,501 ($6,330) a tonne.

Meanwhile, butter milk powder dropped 7.3 per cent to US$1,866 ($2,624) a tonne, while cheddar declined 2.1 per cent to US$3,317 ($4,664) a tonne.

Rennet casein fell 1.1 per cent to US$4,419 ($6,214) a tonne, while anhydrous milk fat slipped 0.2 per cent to US$6,405 ($9,008) a tonne.

No prices were available for lactose.

The New Zealand dollar last traded at 71.08 US cents as of 12.46pm in New York, compared with 71.05 US cents at the previous close in Wellington.

There were 112 winning bidders out of 158 participating at the 16-round auction. The number of qualified bidders rose to 516, up from 509 at the previous auction.