Higher NZ farmgate milk prices beckon after strong Global Dairy Trade auction

Dairy prices improved at this morning's Global Dairy Trade auction.

Higher farmgate milk prices are on the cards after another strong Global Dairy Trade (GDT) auction.

All Fonterra’s main reference products rallied strongly at this morning’s auction, driven by demand from the Middle East and improved interest from China.

The event saw fierce bidding, with the overall GDT price index rising 4.2 per cent, continuing a firming trend that started last October.

The average price at the auction came to US$3571 ($5856) a tonne.

Most product categories saw big increases except for mozzarella, which dropped by 1.8 per cent to US$3,760 a tonne.

The result surpassed most expectations, with the NZX-SGX derivatives markets having predicted a flat to softer performance, NZX dairy analyst Rosalind Crickett said.

The Middle East continued to maintain its position as the top buyer of whole milk powder, Crickett said.

However, North Asia showed strong buyers’ presence as the top bidder for skim milk powder, butter, anhydrous milk fat and lactose.

Southeast Asia/Oceania took out the top bidder’s spot for cheddar, Crickett said.

All Fonterra’s “reference” products - used to formulate the co-op’s farmgate milk price - gained ground.

Whole milk powder, which has the biggest influence on the milk price, gained 3.4 per cent to US$3463 a tonne, followed by skim milk powder, which jumped by 4.6 per cent to US$2758 a tonne.

Butter rallied by 10.3 per cent to US$6516 a tonne - the highest since April 2022.

Butter milk powder rose by 1.2 per cent to US$2412/tonne, while anhydrous milk fat firmed 3.3 per cent to US$6033/tonne.

Outside the reference products, cheddar gained 6.3 per cent to US$4,469 a tonne while lactose firmed 2.6 per cent to US$785 a tonne.

Fonterra last December raised the farmgate milk price midpoint for the 2023/24 season by 25c to $7.50 per kilo of milksolids, with a forecast range of $7.00-$8.00 per kg.

Chief executive Miles Hurrell said at the time the revised forecast reflected recent strengthening in demand for reference commodity products from key importing regions, including improvement in demand from China, during the quarter.

HighGround Dairy consultant Stewart Davison said the auction result should encourage Fonterra to upgrade its forecast.

“At the next quarterly update, Fonterra will most likely push that mid-point a bit higher to $7.70/kg and will definitely see them close that range,” Davison said.

He added the price action augured well for next season, with futures market pricing pointing to a $9.01 spot milk price.

“Looking into next season, if commodities prices stay at current levels, then that’s the floor price that we would expect for next year, so it’s pretty positive from where we are now,” Davison said.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.