Source: Stuff
Dairy prices have continued their turnaround, and analysts say a drop in production will help them rebound from a five-year low.
Prices rose 3.6 per cent at the GlobalDairyTrade auction overnight, boosted by a big jump in the price of butter.
The average winning price at the auction was US$2709 (NZ$3475) per tonne, up from US$2609 a tonne at the previous auction in mid-December.
The trade-weighted GlobalDairyTrade price index hit a five-year low in December after plunging 50 per cent since February, but it has lifted at the last two auctions with prices up 2.4 per cent at the previous one.
It is at its highest level since September.
Following the auction, AgriHQ lifted its Seasonal Farmgate Milk Price forecast for the 2014-15 season by 10c a kilogram of milk solids to $4.30/kg.
Fonterra’s forecast for the season is $4.70/kg, although auction prices will need to continue to rise for that to be achieved.
AgriHQ analyst Ivan Luketina said Fonterra had offered lower volumes of dairy products on GlobalDairyTrade this season than it had previously, and the lower volumes had helped to reverse the recent price declines.
“There was a slight reduction in the volume of whole milk powder offered from the previous auction, which also delivered a lift in price,” he said.
“The volume of skim milk powder offered was less than the previous auction, and the lower volume attracted a 5.9 per cent lift in prices for Fonterra’s offered product.”
ANZ economists said supply was beginning to adjust to lower prices around the globe and “near-ideal” weather conditions looked to have come to an end in some key producing regions.
“Indeed in New Zealand supply growth has fallen behind last year since December and a soft finish to the season beckons,” they said in a note.
“The use of less supplement, and dry conditions in parts of the South Island, has seen milk flows fall behind last year.
“These dynamics, along with a change in product mix and strong sales via other channels seems to be restricting supply through the GlobalDairyTrade platform helping turn prices from cyclical lows.”
Butter had a strong outing at the auction overnight, up 13.2 per cent, while buttermilk powder prices rose 10.5 per cent.
All categories saw price increases, with anhydrous milk fat up 6.8 per cent, rennet casein up 4.2 per cent, cheddar up 3.2 per cent and skim milk powder up 2.8 per cent.
Whole milk powder, New Zealand’s largest dairy export, had the smallest gain, rising 1.6 per cent.
Volumes continued to fall with 33,669 tonnes sold, down from 35,390 at the previous auction.
ASB rural economist Nathan Penny noted that production by Fonterra farmers was still up about 4 per cent in the season to date.
ASB is predicting a milk price this season of $4.70 per kg, the same as Fonterra’s forecast.
“That said, we do expect production growth to slow through the summer and autumn,” Penny said.
“In that sense, markets will take more convincing that the milk supply growth is indeed slowing, before they start bidding up prices in earnest.”
