NZ auction result boosts milk price hopes

Dairy commodity prices soared by almost 15% at Fonterra’s latest auction, igniting hopes that EU and UK markets will follow.

In its seventh successive price rise, the total weighted average price increased by 14.8% on the previous sale, to $4,683/t (£3,104/t) – the highest price since March 2011. With drought in New Zealand starting to restrict late season milk production, GlobalDairyTrade sold just 15,994t – 27% less than the previous sale and 43% less than the same time last year.

John Allen, managing partner at Kite Consulting, said globally tight world markets were behind the stronger overall trend. “Global supply is not keeping pace with rising demand, especially as the milk price-feed price ratio has not been supportive to production in the USA in particular.” US farmers were now expecting milk prices to improve, and EU markets should follow suit, he said.

Whole milk powder led the GlobalDairyTrade charge, with a 21.2% jump, but all commodities were firmer throughout each contract period, from spot sales through to September 2013. Cheddar values increased by an average of 13.7%, with butter up by 11.5% and skimmed milk powder rising by 7.7%.

“EU milk prices are currently averaging 32-35c/litre, and we should see a significant strengthening in that, perhaps to 35-40c/litre,” said Mr Allen. This should filter through to better prices for Arla Milk Link suppliers, whose contracts were linked to EU returns. “It will create a totally new dimension in the UK dairy sector, where we are linking into EU prices via a co-operative,” he said.

UK milk prices had been at a premium to world markets following last year’s awful weather, so world values were only catching up, he added. “But if world prices overtake UK values, our market should follow. The late spring will also put pressure on milk production across the EU, which should further fuel the northern hemisphere market.”