Dairy prices post lift after run of drops

Dairy prices posted a 2.7% lift in this week's GlobalDairyTrade auction, breaking a run of four consecutive price falls.

Prices rose for most products on offer, including a solid 3.6% increase in whole milk powder (WMP) prices.

WMP has the greatest bearing on Fonterra's farm-gate milk price, and this was the first lift in WMP prices since March.

That result was better than ASB's expectation of no change and better than futures market pricing which indicated about a 1% rise, ASB senior rural economist Nathan Penny said.

Despite the positive result, WMP prices still remained around 7% lower than their 2019 highs. The six auctions during April, May and June all posted falls.

Skim milk powder prices led price gains, lifting 3.8%, while the cheddar price rise was also solid, up 3.3%.

Milk fat prices stabilised after recent large falls, both butter and anhydrous milk fat prices increasing 1.7%.

The latest result did not change the outlook for global dairy markets, the bank believed. The result, if anything, was a function of prior price weakness rather than a signal of renewed price strength, Mr Penny said.

ASB continued to see global dairy markets, on the whole, as tight. New Zealand production growth was past its cyclical peak, while production growth in other major dairy exporters was soft.

''On this basis, we anticipate that dairy prices can push towards cyclical highs later in the season,'' he said.

New Zealand's spring would be important for setting the direction for prices. If domestic production was soft in the coming season, dairy buyers were likely to be ''caught short'', given many appeared to be currently living hand-to-mouth, he said.

Westpac senior economist Anne Boniface said global growth in milk supply was still expected to be relatively modest over the second half of the year.

While much would depend on pasture conditions in New Zealand, it was unlikely that last year's exceptionally strong growth in milk production during spring would be repeated.

And with the national herd likely to be static, or even contract a little, further growth in the national milk supply would hinge on incremental productivity improvements.

One crucial development the bank would be keeping a close eye on was how Chinese demand evolved in the coming months, Ms Boniface said.

Buyers from the North Asian region, dominated by China, had been strong through the first half of the year.

Most recently, the proportion of GlobalDairyTrade sales to the North Asian region has been notably higher than usual through June and July.

That suggested consumer demand for dairy products in China seemed to be holding up well, despite growing headwinds for the Chinese economy and trade tensions, she said.

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