Dairy prices jump 4.2% at auction to hit their highest level in almost 9 years

Dairy prices hit their highest level in almost nine years at the overnight global auction.

Dairy prices jumped 4.2 per cent overnight to hit their highest level in almost nine years, cementing expectations for record milk prices for farmers this season and bolstering the outlook for next season.

The Global Dairy Trade price index reached 1516, just shy of the all-time record of 1573 set in April 2013. Prices rose more than 4 per cent for the third consecutive fortnightly auction [ie held every two weeks].

The average price for whole milk powder, which has the most impact on what farmers are paid, rose 4.2 per cent to US$4503 (NZ$6649) a tonne, the highest level since 2013. Whole milk powder has gained 16.5 per cent over the last three auctions and is sitting 25 per cent higher than at the same time last year.

Dairy prices have been rising as tight milk supply in New Zealand and overseas underpins demand. Fonterra, the world’s largest dairy exporter, has forecast a record farmgate milk payment to farmers for this season which runs to the end of May, and economists say the latest auction also bodes well for prices next season.

“Global dairy prices continue to surge,” said Westpac senior agri economist Nathan Penny. “We now expect global dairy prices to start the 2022/23 season from a higher starting point."

Last month [January 2022], Fonterra lifted its forecast for the current season for a third time, and is now expecting to pay its farmer suppliers between $8.90 and $9.50 per kgMS.

The $9.20 per kgMS midpoint of the range [in the latest revision on 24 Feb, Fonterra has further re-raised the midpoint to $9.60 per kgMS], which farmers are paid off, would be the highest level since Fonterra was formed in 2001. The co-operative paid farmers $7.54 per kgMS last season, and its previous record was $8.40 per kgMS in the 2013/14 season.

ASB economist Nat Keall said dairy prices had enjoyed another whopping auction overnight.

He said there was probably still a little upside risk to his $9.25 per kgMS forecast for this season, and he expected prices to start next season on the front foot, but for improving supply to bring at least some relief as the season wears on. He currently expects $8.80 per kgMS for next season, but warned the margin of error was large.

Fonterra estimates its forecast milk payment to farmers for this season will contribute $13.8 billion to the economy. Strong global demand for New Zealand primary products has helped the economy remain resilient during the Covid-19 pandemic and is helping offset losses from the tourism industry which has been hurt by border closures.

At the latest auction, the average skim milk powder price jumped 6 per cent to US$4,295/t, butter rose 5.1 per cent to a record US$6,686/t, cheddar gained 3.5 per cent to hit US$5,881/t, lactose rose 3.4 per cent to US$1,609/t, while anhydrous milkfat advanced 1.2 per cent to US$6,889/t.

NZX dairy insights manager Stuart Davison said North Asian bidders dominated whole milk powder purchases at the latest auction, but were forced to settle for less volume than at the previous event, as African buyers took a very significant volume.

South East Asian buyers also secured good volumes of whole milk powder, buying proportionally more volume than at the previous event, and significantly more than at the equivalent event a year ago, he said.

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