Prices at Fonterra's latest online dairy auction have continued to push into uncharted territory, due to supply issues caused by drought in the North Island, but experts say as more rain falls the surge in prices will slow.
The GlobalDairyTrade TWI Price Index crept up 0.6 percent compared to the last sale two weeks ago, marking the ninth straight gain for the basket of dairy products.
The average winning price at the auction rose to US$4,968 (NZ$5,849) per ton, up from US$4,966. Maximum supply, or the measure of how much dairy product Fonterra has for sale, rose slightly to 15,440 tons from 14,610 tons, with a total of 15,019 tons sold.
BNZ market strategist Kymberly Martin said the further increase in dairy prices was a good result in light of the drought situation."Any price gains help offset the effects of the drought on farmers," he said. But the soaring price increases would slow as more rain came, Martin said.
The effects of the dry summer throughout the country are being felt in the dairy industry with most North Island farms producing about 30 percent less milk in March.
The drought's grip on milk production is expected to increase, with farmers already drying off cows or thinking about drying them off soon, which means little more milk for the next two months.
While this is a concern, only 13 percent of the season's overall milk production is collected in April-May. The consistently high prices paint a strong picture for next season and will help dairy farmers in the worst-affected areas.
Dairy prices were up 90 percent since the lows of May 2012, Martin said
At the April 16th auction, seven of the 10 product categories rose, and two weren't traded.
The biggest gainer was rennet casein, which rose 7.2 percent, after not being traded for the past four auctions.
The next-biggest gainer was butter, which rose 6.8 percent, while anhydrous milk fat was up 5.9 percent.
Skim milk powder dropped 3.2 percent after a 27.8 percent gain at the last auction. Whole milk powder, the largest product category by volume, was up 2.4 percent. Lactose and milk protein concentrate were not traded.
The auction saw 158 participants out of 797 qualified bidders take part, with 80 winning bids. The greatest number of bidders came from North Asia, followed by the Middle East, North Africa, and South East Asia.
Source: Fairfax NZ News