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A recent modest slowdown in production has been cited as one possible reason for healthy gains in this week's GlobalDairyTrade auction.
The headline index rose 3.7% while prices for whole milk powder were up 3.6%. Westpac market strategist Imre Speizer said WMP had risen a total of 9.6% since the sequence of auction price gains started in early July and was near the top of the past two-year price range.
Chinese auction share fell from 55% to 48%, the lowest since July, and South East Asia-Oceania share was slightly lower. However, demand factors appeared to have been dominated by supply ones.
New Zealand milk collections, which showed promise over the mild winter, had slowed slightly.
A cooler than usual spring meant October, the largest production month, would probably fail to match the pace seen last year. Meanwhile, global supply remained constrained and the implication from a supply perspective was that prices should at least remain firm, Mr Speizer said.
ASB senior rural economist Nathan Penny said the bank was placing its milk price forecast under review.
If production growth continued to slow, then ASB expected global prices would firm further over the remainder of the year, meaning upside potential to its $7/kg forecast for the season.
Fonterra's latest global dairy update showed the co-operative's New Zealand collection in September was 179.1 million kg/ms, down 0.1% on last season. Season to date collection was 309.4 million kg/ms, up 0.8% on last season.
North Island milk collection in September was up 1.1% on the previous September while South Island collection was down 2.1%.
Fonterra's Australia collections in September were 10.7 million kg/ms, down 15.2% on September last season.
The combination of high on-farm input costs, poor seasonal conditions across Australia, reduced herd numbers and intense competition for milk was affecting Fonterra's milk supply, the report said.
Dairy Australia forecast 2019-20 production to drop by 3% to 5% on the previous season.
Fonterra holds its annual meeting at ILT Stadium Southland today. Earlier this week, shareholders voted to elect incumbent directors Donna Smit and Andy Macfarlane, while Larry Frost is the new Otago representative on the Shareholders Council.