Global dairy prices rise for 6th time in a row, pointing to ongoing recovery

Milk containers in a shop in Basildon, southeast England. (Reuters pic)

WELLINGTON: Global dairy prices rose for the sixth sale in a row at a fortnightly auction held early on Wednesday, cementing hopes of an ongoing recovery from a dip in 2018.

The GDT Price Index climbed 0.9% to an average selling price of US$3,271 per tonne in the auction held in the early hours of the morning.

The index had surged 6.7% at the previous sale. Softer global supply and slower-than-expected production growth out of New Zealand, the world’s biggest dairy exporter, was supporting prices, a reverse after falling for much of 2018.

“The conditions for the start of a new cycle have begun to emerge.

“Essentially those conditions boil down to supply growth increasingly lagging behind demand growth, with little prospect of catch-up in the short-term,” said Nathan Penny, senior rural economist at ASB Bank.

But the risks of a slow-down in the Chinese economy spilling over into lower household demand for dairy remained a vulnerability to ongoing price growth, he cautioned.

In total, 25,324 tonnes were sold at the latest auction, an increase of 8.6% from the previous one, the auction platform said on its website.

The auction results can affect the New Zealand dollar as the dairy sector generates more than 7% of the nation’s gross domestic product.

The kiwi was trading up 0.5% at US$0.6883 on Wednesday morning.

GDT Events is owned by New Zealand’s Fonterra Co-operative Group, but operates independently from the dairy giant. The New Zealand milk co-operative, which is owned by about 10,500 farmers, controls nearly a third of the world dairy trade.

US-listed CRA International is the trading manager for the twice-monthly Global Dairy Trade auction.

A number of companies, including Dairy America and Murray Goulburn, use the platform to sell milk powder and other dairy products.

The auctions are held twice a month; the next one is scheduled for March 5.