Global Dairy Auction: Improvement in dairy prices

Dairy prices mostly improved at this morning's GlobalDairyTrade auction, the GDT price index gaining 2.4 per cent.

The average winning price at the auction - the last for 2014 - was US$2609, up from US$2513 at the previous sale on December 2.

Whole milk powder prices - the most important product for New Zealand dairy producers - rose by 1.4 per cent to US$2,270 a tonne.

Last week, Fonterra cut its farmgate milk price forecast for the current season to $4.70 per kg of milk solids - down from previous forecast of $5.30 a kg, due to lower sharply lower market prices.

See more details of today's auction here:

The co-operative said that, when combined with the previously announced estimated dividend range of 25-35 cents per share, its cash payout would be $4.95 to $5.05 for the season.

AgriHQ analyst Susan Kilsby said it was too early to say whether the positive price trend would continue into 2015.

"Fonterra factored in a steady increase in dairy commodity prices into its $4.70/kg milk price, therefore prices need to keep moving higher if this price is to be achieved," she said in a market commentary.

Much of Fonterra's thinking centres on wholemilk prices recovering at some point to their long-run average of around US$3500 a tonne.

Falling oil prices, geopolitical uncertainty in Russia and Ukraine, and subdued demand from China have all contributed to sharply weaker prices this year.

Skim milk powder - another major product for New Zealand producers - dropped in price by 3.2 per cent at this morning's sale but other products fared better, with anhydrous milk fat gaining 10.8 per cent and butter rising by 10.4 per cent.

Butter milk prices dropped by 9.5 per cent and cheddar fell by 0.6 per cent. Rennet casein gained in price by 4.5 per cent.