16 Nov 2016

Dairy prices reach two-year high in latest auction

8:05 am on 16 November 2016

Global dairy prices have risen to their highest level in more than two years, with the average price up by 4.5 percent at the latest overnight auction.

The size of the latest drop in international dairy prices has taken dairy farmers and commentators by surprise.

Dairy prices are up by more 50 percent since July. Photo: 123RF

The price rise to $US3519 a tonne is the third consecutive rise and prices are at their strongest sinnce July 2014.

The key whole-milk powder price climbed 3.2 percent to $US3423 a tonne.

There were strong rises for several other key products, including skim milk powder, cheddar and butter milk powder, which all had double digit gains.

The amount of product offered for sale fell nearly 14 percent, which reflected falls in production in New Zealand, Australia and Europe.

Dairy prices have risen more than 50 percent since July, and have more than doubled from their historic lows in the middle of last year. They have held above the important $US3000 levels, which is estimated to be the break-even point for most dairy farmers.

The rise in prices will underpin Fonterra's latest forecast milk payout of $5.25 a kilo of milksolids.

Over the past month analysts have revised up their forecasts for the season payout, towards $6 kg/milksolids.

The wetter-than-normal spring, particularly in the Waikato region, has reduced production and that fall is expected to be reflected in less product being offered at forthcoming auctions, going into the new year.

But Westpac senior economist Anne Boniface said prices also seemed to be lifted by improved demand, as well as lower supplies.

"Once again there was strong buying interest out of China in last night's auction, which helps give us some confidence that higher prices are not just a reflection of tighter supply but also, in part, reflect firmer demand. "

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