19 Oct 2016

Dairy prices resume upward trend

9:24 am on 19 October 2016

Prices have risen in the global dairy auction overnight.

The average price rose 1.4 percent to $US2965 a tonne.

It resumes the upward trend after last month's 3 percent fall and overall prices are close to their highest since March 2015.

The important whole-milk powder (WMP) price rose 2.9 percent to $US2760.

The futures market had indicated a slight rise in prices.

The price of most products sold increased, but cheddar fell 3.7 percent and skim milk powder was fractionally lower.

The amount offered for sale fell 7 percent to 31,525 tonnes.

Fonterra has said production has been falling, with wet weather in Waikato, a key dairying region, causing a 10 percent fall in volumes.

The co-operative reduced the amount of milk powder it offered at the latest auction, and has signalled a likely reduction in future offerings.

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Graphic: www.globaldairytrade.info

"Whilst last night's result perhaps disappointed versus expectations of a larger rise after the reduction in WMP supply, there were other positives. One was a steepening in the WMP curve suggesting there remains buyer interest after the Chinese free-trade window shuts," said ANZ agric-economist Con Williams.

Fonterra and other local dairy companies have raised their forecast payout to farmers to between $5 and $5.25 a kilo of milk solids for the current season, which is around the break-even level for most producers.

It has warned of continued volatility in the dairy sector, where over production and muted demand has been affecting prices.

Mr Williams said prices looked to be consolidating around current levels and he had raised his forecast season payout to between $5.25 and and $5.50 a kilo.

He expected dairy supplies to remain restricted because of low stocks and changing production levels.

"Offshore will be interesting, with lower European and Australian production set to continue through to the first quarter, but stronger US supply potentially providing an offset."

The New Zealand dollar was lifted by the dairy auction rising close to a quarter of a cent against the US dollar to a one week high of 72.18 cents, before settling back to open local trading around 72 cents.