Global Dairy Prices Hit Eight-Year High

Dairy prices have jumped 4.6 percent to hit an eight-year-high, as tight milk supply stokes demand for New Zealand’s biggest export commodity.

The Global Dairy Trade price index rose to 1397, its highest level since March 2014.

The average price for whole milk powder, which has the most impact on what farmers are paid, posted the biggest gain, up 5.6 percent to US$4082 (NZ$6041) a tonne, and is sitting 21 percent higher than at the same time last year.

Global dairy prices have been supported this season by weaker milk production in New Zealand and overseas, hindered by poor weather and higher feed costs. Last week, Fonterra lowered its forecast for milk it expects to collect this season by 1.6 percent to 1.5 billion kilograms of milk solids due to challenging pasture growing conditions.

Buyers have “taken full stock of the tightness of milk supply globally and are now increasingly willing to pay the price to secure product,” said NZX dairy insights manager Stuart Davison.

He noted demand was global, with buyers from all regions participating in the auction. North Asian buyers secured well over half of the total volume sold.

Fonterra has forecast a farmgate milk price of between $8.40 and $9 per kilogram of milk solids this season which runs to the end of May. The $8.70 per kgMS midpoint, which farmers are paid off, would be the highest level since Fonterra was formed in 2001 and is expected to contribute more than $13.2 billion to the economy.

Davison expects farmgate milk price forecasts to increase from their already record levels for this season.