Global weather patterns have impact on dairy prices

Rabobank's dairy analyst Emma Higgins. Photo / Supplied

Dairy product prices declined again at the Global Dairy Trade auction overnight, with the GDT price index dropping 3.6 per cent and whole milk powder falling 2.1 per cent.

Although the results are disappointing, Rabobank's dairy analyst Emma Higgins told The Country's Jamie Mackay it's not time to panic yet.

"What we saw overnight was obviously a slide in fat prices ... this is reflecting generally weaker prices for fat offshore in some key markets in Europe and the US ... fat is still where it's at, but what we're seeing is a recalibration of that price."

A heatwave in the Northern Hemisphere and Australia may work out in New Zealand's favour when it comes to commodity prices says Higgins, as weather challenges have led to feed costs soaring.

Straw wheat in England, which usually sells at £35/tonne, is now going for closer to £100/tonne says Higgins, and the heat is also taking its toll on feed prices in the German, French and Australian markets.

"So feed costs are lifting and that's really impacting on margins and we are starting to see milk production slow down as a result of that," says Higgins.

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Although official data shows European milk production rose in June, Higgins says the heat of July and August has actually caused this output to slow.

"So if we do continue to see that milk production slow down we could see upside in terms of commodity prices which would be helpful if we're talking about the milk price too."

The weather in New Zealand has been "very generous," says Higgins and as a result the expectation is that production will be strong with plentiful supply in spring. Rabobank is predicting a 2 per cent milk production growth with the farmgate milk price at $6.80kgMS.

"The weather conditions are supportive of stronger milk production but also with the farmgate milk price being as high as what it is, that also inspires confidence in some farmers too."