Strong run continues in Global Dairy Trade auction

Prices have remained buoyant in the latest Global Dairy Trade auction, held overnight, with a 4.2 per cent jump in the overall index.

It's the third auction in a row to feature an increase of 4 per cent or above, following announcements around New Zealand's downgraded milk production forecast for the 2021/22 season, coupled with continued strong demand from overseas buyers.

Whole milk powder - which has the biggest influence on Fonterra's farmgate milk price - also lifted 4.2 per cent to break the US$4500/MT mark, with an average US$4503/MT.

This further builds on a 5.8 per cent increase at the previous auction.

Skim milk powder - Fonterra's second biggest reference product - recorded the biggest increase of the event, with a 6.0 per cent leap to an average US$4295/MT.

Butter wasn't far behind - increasing 5.1 per cent to an average US$6686/MT.

Cheddar rose 3.5 per cent to an average US$5881/MT, while lactose lifted 3.4 per cent to an average US$1609/MT, but with very little product traded; and anhydrous milk fat added another 1.2 per cent to its balance with an average US$6889/MT.

Butter milk powder and sweet whey powder were not offered at this event.

On January 25, Fonterra lifted and narrowed its forecast farmgate milk price for the 2021/22 season to between $8.90 and $9.50/kgMS, with a midpoint of $9.20.

Earlier this month, Westpac senior agri economist Nathan Penny lifted his milk price forecast to $9.50/kg - the very top of Fonterra's range.

"Bad weather and surging costs have hit New Zealand dairy production from all sides," he said in a commentary.

"Accordingly, we now expect 2021/22 production to fall 3 per cent compared to the 2020/21 season.