Milk price of $7 possible this season

ASB senior rural economist Nathan Penny. Photo / Supplied

A milk price of $7 or above is a possibility this season if the weather does not improve soon, ASB senior rural economist Nathan Penny says.

It had been a very wet year and the rain was now starting to hurt production, which was reportedly down from last season in some key regions.

While it was still early spring, prices would rise if the rain continued and production remained weak, Mr Penny said.

Global demand for milk fats continued to surge and in Europe, butter shortages had led to a price spike to $US7750 ($NZ10,725) per metric tonne, well above current New Zealand prices.

At those levels, European buyers were likely to increasingly turn to New Zealand for butter supply and those developments were ''a recipe for higher prices''. It could quickly move to $7kg or above, he said.

Overall, prices were effectively unchanged in this week's GlobalDairyTrade auction. There was a 0.3% lift, which reaffirmed ASB's 2017-18 forecast of $6.75.

It was the seventh consecutive auction that had a smaller than 2% movement in either direction, as the lower volatility continued.

Milk-fat prices were strong: butter and anhydrous milk fat lifted 3.8% and 3.6% respectively.

Butter reached its second-highest level in GDT auction history and another butter price surge might not be far away, Mr Penny said.

Whole milk powder products fell 1.6%, whereas futures pricing ahead of the auction had pointed to a 3%-5% price rise.

That down-side surprise continued a recent pattern of futures pricing overestimating the auction result, he said.