Prices at Fonterra's latest online dairy auction surged as international buyers returned to the market en masse, with values also boosted by tighter supply now the New Zealand production season is over.

The GDT-TWI Price Index rose 13.5 per cent compared with the last sale in mid-May, marking the first gain in four events which are held twice monthly. The average winning price was US$2899 (NZ$3831) per metric tonne, its highest level since April.

"While one result does not make a trend and we expect volatility to remain, a bounce in dairy prices and lower New Zealand dollar is required to deliver Fonterra's $5.50 per (kilogram payout) that was flagged two weeks ago," said Alex Sinton, director of institutional FX at ANZ New Zealand.

Prices across almost all product categories showed improvements, but the real stand outs were anhydrous milk fat, which rose 24.4 per cent, and skim milk powder, up 21.3 per cent.

While few details on the bidder were available, it is speculated that the interest came form China as it coincided with a drop in domestic skim milk production and imports over recent months.

The sales saw 170 participants out of 649 qualified bidders take part, with 106 winning bids.

The dairy sector has been under pressure since the middle of last year, when record prices attracted European and American producers into the market. That added supply, coupled with a record local production season, saw prices pare backed sharply.

Dairy is New Zealand's biggest export earner, and many farmers had been counting on high farm gate prices to pay down their debt and begin pumping money into the rural economy.

- © Fairfax NZ News

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