Demand remains strong at first global auction in new dairy season

Dairy prices eased at the first global auction for the new season, but analysts say demand is strong and prices remain firm.

The global dairy trade price index slipped 0.9 per cent from the previous auction a fortnight ago. Despite the fall, the index is still sitting 41 per cent above year ago levels.

Dairy prices have jumped this year, largely as a result of demand from China where a wealthier population and increased focus on health and wellbeing after the Covid-19 pandemic is stoking demand for better nutrition. The strong demand relative to supply prompted Fonterra last week to announce a record opening milk price for farmers this season.

"Despite the slight easing at this auction, prices remain firm on the whole," said NZX dairy analyst Stuart Davison. "This is a great start to the season.

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"It's another notch in the belt for the recently announced Fonterra farm gate milk price, but also a signal that there is still very high demand globally for dairy products."

The average price for whole milk powder, which has the most impact on what farmers are paid, fell 0.5 per cent to US$4062 (NZ$5602) a tonne. That's 47 per cent higher than the same time last year.

Davison said whole milk powder buying was dominated by North Asian buyers. While the quantity purchased fell significantly compared to the previous auction, it was similar to the quantity purchased at the same time last year.

Buyers from the Middle East, the European Union and South East Asia significantly increased their purchases of whole milk powder from the previous auction, he said.

"It seems that North Asia's reduction in whole milk powder volume purchased has allowed other regions to participate to a greater extent," he said.