Dry spring lifts dairy prices

Summary

Global Dairy Trade (GDT) auction average prices rose 2.5 percent overnight to USD 4,021 per tonne (NZD 7,075), the second consecutive gain after a 1.2 percent rise in mid-September. NZX dairy analyst Rosalind Crickett said in a report the result was 'largely in line with expectations'. The gain comes as New Zealand milk production data showed a record September milk collection, with milk solids up 1.9 percent.

Crickett said momentum appears to be slowing, with field reports of drier-than-normal spring conditions in parts of the North Island and the risk of El Niño in early-to-mid summer still being priced by the market. Whole milk powder rose 4.4 percent to USD 3,760 per tonne (NZD 6,616); skim milk powder gained 3.4 percent to USD 3,975 per tonne (NZD 6,995), a four-year high on the platform. Crickett said 'last-minute restocking ahead of the holidays' may also be a driver, particularly amid drought and ongoing geopolitical tensions, with market concerns about product availability in the coming months.

The spread between powders and fats continued to widen, but butter fell less than initially expected, down 0.4 percent to USD 4,721 per tonne (NZD 8,309). She said increased cheese production continues to weigh on cheddar prices as global demand for whey protein rises, with cheddar plunging 7.3 percent on higher inventories and export volumes. Crickett also said strong participation from North Asian buyers helped drive the rally, with their volumes slightly above half of total product sales.

Commentary

Global Dairy Trade auction prices rose for a second consecutive time, with the average price rising to USD 4,021 per tonne, as whole milk powder gained 4.4 percent and skim milk powder rose 3.4 percent to a four-year high. The move reflects market concerns over New Zealand's dry spring and El Niño risk, as well as strong restocking demand from North Asian buyers ahead of the holidays. As the world's largest dairy exporter, New Zealand's production changes have a significant impact on international prices.

Although milk collection at large co-operatives such as Fonterra hit a record in September, momentum is slowing, and drought in parts of the North Island could curb future supply. For New Zealand small and medium-sized business owners, higher prices are beneficial in the short term for farm revenue and export earnings, but they need to watch for rising costs and supply volatility. Meanwhile, cheddar prices plunged 7.3 percent, indicating oversupply in the cheese market, while rising whey protein demand is shifting production, which may offer opportunities for businesses focused on high-protein dairy products.

North Asian buyers accounted for more than half of volumes, underscoring the importance of the Chinese market; after the upgraded China-New Zealand free trade agreement lowered tariffs, channels have opened for small and medium-sized dairy firms to enter second- and third-tier Chinese cities. However, Australian dairy is also recovering, intensifying competition, and New Zealand firms need to build differentiated advantages in segments such as organic and grass-fed. In the long term, climate risk and geopolitical tensions may continue to affect supply chains, and businesses should strengthen risk management and market diversification.

Keywords: Global Dairy Trade auction, whole milk powder prices, skim milk powder, New Zealand milk production, dry spring, El Niño risk, cheddar prices, North Asian buyers, milk solids, Rosalind Crickett

Source: RNZ