World dairy prices regain some ground lost in previous GlobalDairyTrade auction
The "big wet" in the upper North Island and consequent drop in milk production appears to have lifted dairy prices at the latest global auction.
ASB economist Nathan Penny said buyers seemed to be responding to reports that production in at least a third of the country had fallen.
"In Waikato milk collections are running 15-20 per cent behind last year. To me today's rise is the first soft confirmation that buyers are taking the lower production into account," Penny said.
Global dairy prices rose 1.4 per cent at the latest auction overnight, following a 3 per cent dip which ended a run of price increases.
READ MORE: Prices down 3 per cent at GDT auction
The average price was US$2965 per tonne, with most commodities rising.
New Zealand's main export, whole milk powder (WMP), rose 2.9 per cent to an average price of US$2760 per tonne, following a 3.8 per cent decline in the previous auction.
Penny said Fonterra had reduced the volume on offer by 5 per cent just prior to the auction, relative to what it had been planning. It has also signalled it will cut the amount it will send to auction for the rest of the year by 2 per cent.
Rainfall was the highest it had been for the last dozen years, helping to reduce paddocks to mud baths.
Buyers were now waiting for the results of the October collection for confirmation that production was definitely reduced. Penny said he was sticking to his $6 per kilogram of milksolids farmgate milk price for the end of the season.
Fonterra's decision to offer less for auction, after milk collection dropped in parts of New Zealand thanks to recent wet weather, helped drive prices up, said Westpac senior economist Anne Boniface.
"This announcement saw futures markets move to price in a sizeable lift in WMP prices in last night's auction," Boniface said.
"However, for the third auction in a row, futures markets overestimated the lift in WMP prices.
"While we have been sceptical that the recent lift in dairy prices would be entirely maintained in the coming months, we have also warned that NZ pasture conditions would be a particularly important determinant of NZ milk production this season. Indeed this is proving to be the case.
"Consequently, on its own, last night's auction result adds some upside risk to our forecast of a $5 farm gate milk price this season."
The SMP Price Index fell 0.3 per cent with price dropping in the closer delivery periods. Prices for the milkfat products lifted at the auction with the index for anhydrous milkfat gaining 1.1 per cent to reach an average selling price of US$5007 per tonne. The GDT butter index lifted by 2.6 per cent with product achieving an average price of US$3984 per tonne. Lactose recovered with a 5.6 per cent gain.
There were 164 participating bidders, with 31,525 tonnes of product sold.
* Audio courtesy of RNZ