Prices up 2.7% at September 5 Global Dairy Trade auction

The Global Dairy Trade price index was up 2.7 per cent at the auction on September 5, led by a rebound in the whole milk powder price.

WMP rose 5.3pc to $US2702 a tonne, reversing some of the 15pc decline so far this season.

But auction results were mixed.

Anhydrous milk fat lifted 2.7pc and butter 1.1pc, but butter milk powder slumped 6.5pc, while skim milk powder fell 1.6pc and cheddar 0.6pc.

Pundits remain cautious about whether the market - which sits at a three-and-a-half year low - has bottomed.

"It's an open question on whether prices might be finding a floor, but we still don't anticipate a broader recovery for quite some time," ASB economist Nat Keall said.

"It pleasing to see prices recover a bit of ground, but we are still cautious on the outlook."

Mr Keall said China's share of purchases declined at the auction, with the bulk of WMP bought by Middle East and south-east Asian and Oceania buyers.

"As by far the dominant player in the market for NZ dairy exports, we still believe a more sustained recovery in Chinese demand is a necessary precursor to a substantial recovery in prices," he said.

"That still doesn't look imminent in our view.

"With the risk of sounding like a broken record, Chinese economic data remains underwhelming."

Westpac NZ senior agri economist Nathan Penny said while the latest positive auction result was welcome, global dairy prices remained low.

Prices were down about 25pc on the same time last year.

Mr Penny warned the season ahead would likely remain tough for most NZ farmers.

Fonterra has acknowledged its recent cuts to the forecast price for its NZ suppliers have made the outlook for farmers even more challenging.

In an email to NZ suppliers on September 1, its chief executive officer Miles Hurrell said the co-operative had embarked on a seven-year project to cut $1 billion in costs out of its business.

He blamed a reduction in demand from China for imported WMP as one of the key drivers of falling prices.

A COVID-19 lockdown induced reduction in Chinese consumer demand for fresh milk had forced Chinese processors to spray dry surplus milk, leading to high stocks of WMP.

But Mr Hurrell said demand for NZ product could return at the start of 2024, which would coincide with the remaining tariffs on NZ dairy products being removed as part of the NZ-China Free Trade Agreement.

"China is still the worlds top market for dairy imports and we believe imports will remain an important part of product mix for the foreseeable future," he said.

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