Dairy prices jump 3.8%

Dairy product prices increased for a second straight auction, posting the third gain in the eight Global Dairy Trade auctions held so far in 2016, as the outlook improves.

The GDT price index rose 3.8% to $US2263, up from $US2,188 at the previous auction two weeks ago (on Monday, the futures market was predicting a 1.5% increase).

Some 21,206 tonnes of product was sold, down from 22,682 tonnes at the previous auction two weeks ago.

Whole milk powder climbed 7.5% to $US2156 a tonne.

"The lift in whole milk powder prices on GDT was considerably greater than the market had anticipated," AgriHQ dairy analyst Susan Kilsby said in a note.

Based on NZX Dairy Futures prices, Ms Kilsby said she expects the whole milk powder price will reach $US2450 a tonne by January 2017.

Following the GDT auction, AgriHQ forecasts a small lift in the farmgate milk price for next season. The AgriHQ 2016-17 Farmgate Milk Price currently stands at $4.45 per kilogram milk solids, which compares with a 2015-16 estimate for $4.09/kgMS. Fonterra's current forecast is $3.90/kgMS for the 2015-16 season.

Source: GlobalDairyTrade. Click to zoom.

Source: GlobalDairyTrade. Click to zoom.

"The strong New Zealand dollar has not impacted our forecast for the 2015-16 season as the majority of the currency requirements will have now been hedged," Ms Kilsby said. "However, if the New Zealand dollar remains strong, then this will erode returns in the 2016-17 season."

"The higher milk price forecast for next season is primarily driven by the expectation that dairy commodity prices will continue to rise in the coming months," Ms Kilsby said.

Indeed, Danone, the world's No. 1 yoghurt maker, said on Tuesday that it expects milk prices to rise this year.

"In 2016, Danone also anticipates upward trends in the cost of its main strategic raw materials," the Paris-based company said.

"Milk prices are thus expected to edge up, with variations from one geographical area to the next," Danone said. It predicts "lower prices" in Europe and the United States in the first half, "with a possible rebound" in the second half of the year, while it anticipates "steady price increases" in emerging countries all year long, particularly in Russia.

In the GDT auction, lactose jumped 8.0% to $US708 a tonne, while rennet casein rallied 7.5% to $US4742 a tonne.

Butter milk powder rose 2.4% to $US1460 a tonne while butter gained 2% to $US2746 a tonne.

Anhydrous milk fat increased 1.6% to $US3240 a tonne while skim milk powder inched 0.3% higher to $US1727 a tonne.

Cheddar fell 3.9% to $US2636 a tonne.

The New Zealand dollar last traded at 70.26USc at about 12.21pm in New York, compared with 69.50USc at 5pm in Wellington yesterday.

There were 114 winning bidders out of 163 participating bidders at the 13-round auction. The number of qualified bidders rose to 617, up from 615 at the previous auction.

(BusinessDesk)