Wet weather could push butter prices even higher

Butter prices may head higher still after another surge on the GDT platform. Picture/Supplied.

Butter prices may push higher still if the weather does not start to improve, says ASB rural economist Nathan Penny.

At today's GlobalDairyTrade auction, butter prices continued their record-breaking run while whole milk powder put on a modest gain, suggesting Fonterra's forecast of $6.75 per kg of milksolids for this season is safe for now.

Whole milk powder prices, which have the biggest bearing on Fonterra's milk price, gained 0.6 per cent to US$3122 a tonne - where they have largely been tracking since Fonterra increased its farmgate milk price forecast in July.

For the eighth time this year, butter prices hit a record, reaching US$6026 a tonne - up 1.2 per cent compared with the previous auction.

The wetter-than-normal spring may be hitting production, Penny said, pointing to industry data out this week that showed August milk production fell by 1.5 per cent on a milksolids basis.

"August is a good reflection of where the majority of farmers set versus last year," Penny said.

"That month points to wet weather starting to lead towards a stall in production," he said.

"If the wet weather continues over the next two or three weeks, then we would want to revise our farmgate milk price forecast up."

September, October and November are typically the highest producing months. The wet weather and a global butter shortage were a recipe for higher dairy prices.

"The global butter shortage won't correct until sometime in 2018," Penny said.

"If the weather doesn't improve soon, we expect to lift our milk price forecast to $7.00/kg or above in the next month or so."

As it stands, ASB's milk price forecast is the same as Fonterra's - $6.75 a kg.

On New Zealand shop shelves, butter prices rose 11 per cent in August to a record high of $5.39 a block, according to Statistics NZ.

Butter prices were rising lately due to New Zealand's export-driven market, it said.

At today's auction, anhydrous milk fat prices gained 5.3 per cent to US$6,764 a tonne, while skim milk powder fell 1.2 per cent to US$1,920 a tonne. Cheddar prices fell by 1.9 per cent to US$4,032 a tonne.

"Skim milk powder pricing remains weak and this is unlikely to change while there is so much stock held in Europe," said AgriHQ dairy analyst Susan Kilsby.

Rennet casein slid 2.4 per cent to US$6,036 a tonne, while lactose dropped 3.8 per cent to US$759 a tonne.

Fonterra is scheduled to report its annual result for 2016/17 on Monday.