Dairy prices rise after supply concerns

ASB senior rural economist Nathan Penny. Photo / Supplied

Prices lifted 4.9% in this week's GlobalDairyTrade auction, boosted by concerns about supply in the dry conditions.

Fonterra has lowered its forecast milk collection from 1525million kg/ms to 1480million, a 3% drop on last season's collection.

Dry weather in early December significantly affected soil moisture and pasture quality across the country.

While recent wet conditions had helped in some regions, it was unlikely to be enough to bring production back to previously anticipated levels, the co-operative said in its latest Global Dairy Update.

Solid gains were seen in prices for most products, including a 5.1% gain in whole milk powder prices and 6.5% lift in skim milk powder.

Westpac's forecast for the 2017-18 was $6.20 kg/ms, 20c below Fonterra's forecast, and tightness in supply suggested some upside risk to the bank's forecast, senior economist Satish Ranchhod said.

However, that was balanced against concerns about easing demand in key markets such as China, he said.

ASB senior rural economist Nathan Penny said this week's result reaffirmed the bank's forecast of $6.50.

It had cut its production growth forecast for the 2017-18 season from 3% to 1%. However, it expected some of the price strength would be temporary.

Weather over January had improved, there being rain in many regions and more forecast, and production was likely to improve later in the season.

The bank also believed Fonterra's -3% production growth forecast was ''overly pessimistic'', Mr Penny said.

Fonterra's milk collection across New Zealand for the seven months to December 31 reached 878million kg/ms, slightly down on the same period last season.

Collections in December dropped by 10million kg/ms, or 6%, due to dry weather across the country.

The ANZ commodity price index fell a further 2.2% last month and dairy led the decline, slipping 5.6%.

Broader based weakness had started to creep in, too, and non-dairy components slipped 0.4% in December, ANZ agri economist Con Williams said.