Business / Country

Dairy prices on the rise amid supply contraints

10:47 am on 2 February 2022

Global dairy prices have hit their highest level in eight years raising the prospect of further rises in dairy farmer payouts.

Photo: RNZ / Rebekah Parsons-King

The average price at the fortnightly global dairy auction rose 4.1 percent to $US4630 (approx $NZ6974) a tonne, the highest since mid-February 2008.

It was the second auction in a row with a rise of more than 4 percent.

NZX dairy manager Stuart Davison said back-to-back rises of such a size was impressive.

"[It's] a real sign that the market is catching up to where it should be in a hurry, as we see buyers recognise that global milk supply will continue to be constrained in the short term, while consumers continue to demand dairy."

There were solid price rises for all the products on offer, with the price of wholemilk powder, which strongly influences the payouts for local farmers, rising 5.8 percent to $US4324 a tonne, close to a 12-month high.

Davison said demand and prices were being driven by China and other Asian buyers.

"This auction confirms that both regions have demands that still need filling, even at current prices ... buyers are still willing to pay these prices to secure product, and

are not expecting prices to fall from these heights in a hurry."

He said the continued strength of dairy auction prices would underpin record payouts for New Zealand dairy farmers.

"There is little doubt that a second 4 percent plus auction result will push the New Zealand farm gate milk price forecasts higher."

In the past week Fonterra and Synlait Milk have raised their forecast payout to farmers for the current season to record highs around $9.20 a kilo of milk solids, as global demand outstrips supply.