Dairy trade auction price jumps again

World dairy commodity auction prices rose 9.4% this week — but the headline 19% price was for whole milk powder, of which New Zealand is the largest supplier.

The price for skim milk powder which is sourced mostly from the northern hemisphere rose by 6.7%.

New Zealand dairy leader Fonterra recently reduced its 2014-15 milk volume forecast to 3.3% below the record 2013/2014 output.

This will reduce the volume of Fonterra product at the auction for the remainder of the season — and this is believed to have triggered a change of market sentiment, despite most markets currently holding sufficient supplies to cover immediate demand.

It was the fourth consecutive price rise at the auction, but market analysts cautioned against hopes of rapid market recovery, pointing to slow Chinese buying, and large volumes of milk availability around the globe, especially in the US.

Meanwhile, drought which had slowed New Zealand production may be ending, with meteorologists saying the immediate threat of an El Niño weather pattern has passed.

Reports that domestic Chinese milk production may have grown by 15% also point to weak markets, and the fall in oil prices has hit demand from countries such as Algeria, Russia and Venezuela.

However, currency speculators reacted to the improved GlobalDairyTrade auction market reference price by boosting the New Zealand dollar by almost two US cents, believing that better than expected milk prices will underpin economic growth in the country.

Currency movements have also fuelled optimism among Irish dairy farmers, with the recent weakening of the euro promising to lift average milk prices for 2015 above the forecast 27 cent per litre.