Dairy prices rise 2.5% at GDT auction, whole milk powder hits four-year high

Summary

Dairy prices rose 2.5 percent to USD 4,021 per tonne (about NZD 7,075) at the latest Global Dairy Trade (GDT) auction, the second consecutive gain after a 1.2 percent increase in mid-September. Whole milk powder climbed 4.4 percent to USD 3,760 per tonne (about NZD 6,616), a four-year high. Skim milk powder gained 3.4 percent to USD 3,975 per tonne (about NZD 6,995), the highest level on the platform in nearly four years.

Butter edged down 0.4 percent to USD 4,721 per tonne (about NZD 8,309), a smaller decline than the market expected. Cheddar cheese fell 7.3 percent, the weakest performer. NZX dairy analyst Rosalind Crickett said the auction result was broadly in line with market expectations.

September New Zealand milk production data, released earlier, showed record collections for the month, with milk solids up 1.9 percent, providing strong fundamental support. But she cautioned that growth momentum may slow, with several North Island regions experiencing a drier spring than usual, and the market is still pricing in the potential impact of El Niño from early to mid-summer. Crickett said pre-holiday stockbuilding may also have supported prices, particularly amid concerns over supply stability in coming months given dry weather and ongoing geopolitical tensions.

The price gap between powders and fats continues to widen. The fall in cheddar cheese reflects higher global demand for whey protein, which has driven expanded cheese production, built-up inventories and higher export volumes. North Asian buyers were active, accounting for more than half of total GDT auction volume and serving as a key driver of the price gains.

Commentary

The 2.5 percent rise in the latest GDT auction average and the four-year high in whole milk powder are a positive signal for New Zealand dairy exporters, but the durability of the rally warrants a measured view. Fonterra, which operates GDT and is the largest supplier, derives about 25 percent of global revenue from Greater China, and China is New Zealand's largest single dairy market. North Asian buyers accounted for more than half of auction volume, indicating demand from China and elsewhere remains solid.

Whole milk powder, China's main imported category, rose to USD 3,760 per tonne, reflecting pre-holiday stockbuilding and supply concerns. However, New Zealand's record September milk production, with milk solids up 1.9 percent, points to ample supply this season. If El Niño intensifies drought, subsequent production could be affected, but current fundamentals do not support a sustained sharp rise in prices.

For small and medium-sized New Zealand business owners, the near-term focus could be the pre-Chinese New Year stockbuilding window, using current high prices to lock in some forward contracts. At the same time, note the 7.3 percent drop in cheddar cheese, driven by higher global whey protein demand that has expanded cheese production and built up inventories. Businesses involved in cheese exports may need to adjust product mix or develop other markets.

Butter fell only 0.4 percent, a smaller decline than expected, showing fats remain relatively firm and the powder-fat spread is widening. Firms can optimise product portfolios by increasing the share of higher-value dairy fat products. Longer term, with China expanding domestic milk supply and diversifying imports, New Zealand dairy companies need to build differentiated advantages in organic, grass-fed and functional dairy segments rather than relying heavily on bulk whole milk powder.

Keywords: Global Dairy Trade, GDT auction, whole milk powder, dairy prices, Fonterra, skim milk powder, cheddar cheese, North Asian buyers, NZX, milk solids

Source: hougarden.com