Whole milk powder prices spike higher at GDT auction

While milk powder prices shot up by 7.5 per cent to US$2156 a tonne. Photo / John Stone

Dairy prices continued to firm at the latest GlobalDairyTrade auction, with the GDT price index gaining 3.8 per cent driven mostly by a big gain in whole milk powder prices.

This morning's improved result builds on a 2.1 per cent gain in the GDT index at the last sale on April 6.

While milk powder prices, the most important product for New Zealand producers and the main influence on Fonterra's farmgate milk price, shot up by 7.5 per cent to US$2156 a tonne while another important product - skim milk powder - firmed by 0.3 per cent to US$1,727 a tonne.

Despite this morning's rise, prices remain low by historical standards and Fonterra's farmgate milk price sits at $3.90 per kg of milksolids, well below the estimated break-even point of $5.25 a kg.

Hear NewstalkZB's Rachel Smalley speak to NZ Herald agriculture writer Jamie Gray about the latest GDT auction here:

Market expectations are that prices will remain subdued over the next few months, but with perhaps a mild pick-up later this year and early in 2017.

Jon Spainhour at Chicago-based commodities advisory firm, RiceDairy, said it was a strong result, particularly for whole milk powder. "Wholemilk powder just became the driver again, which indicates that we might have demand back - particularly out of Asia," he said. "I'm not wildly bullish about wholemilk powder, but I think we have seen the bottom for now and I expect prices to drag higher," he said.

Oversupply, particularly from the milk producing European Union member countries, depressed prices last year and for most of this year. New Zealand's dairy season ends on May 31.