The trade-weighted GlobalDairyTrade price index was up 2.4 per cent, lifting it off a five-year low but prices are still down nearly 50 per cent since February. The average winning price was US$2609 ($3372) a tonne.
It was the first auction since Fonterra cut its forecast milk price to farmers from $5.30/kg of milk solids to $4.70/kg last week after dairy prices continued to slide.
But Westpac senior economist Michael Gordon said production by Fonterra farmers was starting to slow down and this would support higher prices.
He said next season’s milk price may exceed Westpac’s current forecast of $6.20/kg albeit for «undesirable» reasons: increasingly dry conditions in parts of the country.
«A combination of drought conditions plus lack of money for extrafeed would be a major blow to milk production in 2015,» he said.
«It may take some time for international markets to pick up on this risk – but once they do, history gives us an idea of how far prices could be squeezed higher.»
ASB chief economist Nick Tuffley said 2014 had been the «yin» to 2013’s «yang», with farmers ramping up production in response to last season’s record $8.40/kg milk price, leading to an increase in supply and a sharp drop in prices.
«Beyond this season, we remain broadly positive on dairy prospects. Farmers will ultimately respond to this season’s lower milk price by slowing their production,» he said.
«And as this happens we also expect demand to firm, particularly as the Chinese economy perks up, aided by lower energy prices. With this in mind, we expect the 2015/16 milk price to rebound to around $6/kg, while our long-run view remains at $7/kg.»
Whole milk powder, New Zealand’s largest dairy export, rose in price by 1.4 per cent at the auction.
Volume was down significantly with only 35,390 tonnes sold across all products, a drop of more than 10 per cent from the previous auction a fortnight ago.
But despite the positive auction result, AgriHQ has cut its payout forecast by 5c to $4.20 per kilogram of milk solids, 50c below Fonterra’s forecast of $4.70/kg.
AgriHQ dairy analyst Susan Kilsby said the auction result had been outweighed by falling prices on the NZX Dairy Futures over the past fortnight.
«t is too early to say whether this positive price trend delivered by GlobalDairyTrade will continue into 2015,» she said.
«Fonterra factored in a steady increase in dairy commodity prices into its $4.70/kg milk price, therefore prices need to keep moving higher if this price is to be achieved.»
Kilsby said Fonterra’s forecast assumes that whole milk powder will be trading above US$3,000 a tonne by April, but whole milk powder futures for that month are currently only valued at US$2500.
Source: Stuff
