Dairy prices continue to reach higher after Tuesday night’s auction, with the with cheddar and skim milk powder hitting seven-year highs.
The Global Dairy Trade price index gained 1.9 per cent, while butter made the biggest jump up 3.5 per cent over average, unsalted butter to ship in December gained 4.4 per cent.
Cheddar also gained 2.2 per cent following the last events massive jump of 14 per cent, when buyers seemed desperate to secure cheddar with sizeable premiums for volumes in the two nearest delivery periods, NZX dairy insight manager Stuart Davison said.
Tight supply from the European Union had pushed buyers to pay more to buy butter and cheddar, Davidson said.
This highlighted just how tight EU exports must be, as buyers looked to other avenues to secure cheese and butter that would normally be supplied from the EU, he said.
The whole milk price, which has the biggest impact on what farmers are paid, jumped 1.9 per cent to US$3987 (NZ$5698) a tonne but didn’t quite hit its March high. When it broke through $4000 a tonne it would be a big signal that the market was keen on it, Davison said.
Skim milk powder prices also continued to surprise, gaining another 1.4 per cent to reach US$3676 a tonne.
There was practically no premium for skim milk powder between New Zealand and the EU, potentially highlighting that buyers were unwilling to chase prices much higher, he said.
Demand from China was stronger year-on-year, while lower milk production in New Zealand due to the impact of weather on pasture growth was also contributing to higher prices.
In October Fonterra increased its forecast milk payment for farmers to record levels for this season as demand for dairy holds up while supply tightens.
The previous auction on November 3 saw the index hit an eight-month-high, but Tuesday night’s event saw some prices push to points unseen since the 2014 season at a pace that was unexpected, Davison said.
“The big one to glean from this event, is that demand for dairy remains solid and growing as global milk supplies remain tight and buyers are willing to keep chasing prices.”
North Asia was the most dominant buyer at the event, taking just under half of the total volume sold and the largest share of whole milk powder, while South East Asia and Oceania also returned a good form, despite buying less whole milk powder than at the previous event.
Davisonsaid it was unclear whether this was due to price sensitivity in South East Asian markets, but measured against recent auctions, the region’s overall purchase volumes were running higher than normal.
However, it was the Middle East that increased its purchasing volume the most from the previous auction, while African buyers snapped the most skim milk powder.
Butter was bought in the greatest volumes by North Asia, with the Middle East and North America also purchasing good volumes.