However dairy spokesman Andrew Hoggard warned that late last year there had been four rises in a row, followed by a series of falls so nothing was certain.
«For a while it looked like we were rocketing back into the good times, we got all excited and then the floor caved out beneath us. You just don’t know where things can go,» he said.
The price of whole milk powder (WMP), New Zealand’s key export, jumped 7.5 per cent to US$2156 at the latest Global Dairy Auction held on Wednesday.
Overall, world dairy prices climbed 3.8 per cent to US$2263.
At the last auction a fortnight ago, dairy prices rose 2.1 per cent to US$2198, with WMP rising 1.5 per cent to US$2013, after several months of mixed results.
Rabobank analyst Emma Higgins said while the results were a much needed morale booster, the outlook remained «quite weak» for the next 12 months.
«The oversupply of world markets continues to build inventories and a lot of buyers are well covered for product,» Higgins said.
There had been no shift in fundamentals to support sustainable higher pricing.
Westpac analyst Anne Boniface said there had been low volumes on offer as the New Zealand production season drew to a close which could have supported prices.
She warned of the risk of a higher New Zealand dollar, which has now moved back above 70c against the US dollar.
Hoggard agreed that if the dollar remained strong, it would erode future returns.
He noted forward contracts had been quite strong, particularly for WMP.
«But those are only US$2300 a tonne, still well short of US$3000 which is our target. It’s hinting that things might be firming up but it’s a long road,» he said.
Agri HQ dairy analyst Susan Kilsby said the lift in WMP prices was considerably greater than the market had anticipated.
Before the auction, futures trading indicated there might be only a 1.5 per cent rise.
«The lower volumes on offer helped to support WMP prices but prices for skim milk powder are still weak due to the large quantities of this product currently being produced in the European market. WMP is less influenced by the European market as most of the extra milk in that market is going into SMP and butter at present. But if WMP prices continue to improve then European processors are likely to produce more WMP,» Kilsby said.
The AMF price index gained 1.6 per cent while butter was up 2 per cent. Cheddar was the only product to fall in price with the cheddar price index dropping 3.9 per cent.
AgriHQ forecasts a small lift in the farmgate milk price for next season. The AgriHQ 2016-17 Farmgate milk price currently stands at $4.45 per kilogram of milksolids.
This compares to an AgriHQ 2015-16 farmgate milk price of $4.09/kgMS. Fonterra’s current forecast is $3.90/kgMS for the 2015-16 season.
Source: Stuff
