Global Dairy Prices Rise on the Back of Strong Global Demand

Strong global demand snaps four consecutive price drops in the Global Dairy Trade Price Index which rose 2.7% fueled by weak New Zealand production which points to more price gains. ( Reuters )

Global dairy prices jumped at a fortnightly auction held early on Wednesday, snapping four consecutive falls and pointing to ramped up global demand that could see further price rises.

The Global Dairy Trade Price Index climbed 2.7 percent, with an average selling price of $3,587 per tonne, in the auction held in the early hours of Wednesday morning.

The index had fallen for the fourth time in a row at the previous sale, edging down 0.6 percent.

"All up, this auction result hints at strong global demand. And with NZ production still relatively weak heading into winter, we expect prices, if anything, to creep a little higher over coming months," said ASB rural economist Nathan Penny, in a research note.

Prices had been slipping in recent weeks thanks to New Zealand, the world's largest dairy exporter, posting stronger-than-expected production as bad weather conditions eased up.

Nevertheless, the Pacific nation was still struggling with below-average supply due to extreme weather fluctuations and analysts said buyers were starting to realize that and snap up any New Zealand products they could find.

Gains at the latest auction were broad based, and prices for whole milk powder, New Zealand's main export and the most-traded item at the auction, rose 0.9 percent.

The auction results can affect the New Zealand dollar as the dairy sector generates more than 7 percent of the country's gross domestic product.

However, after an initial blip higher, the currency was unaffected by the dairy results and fell 0.3 percent as investors focused on the country's inflation figures due out on Thursday, which were expected to show tepid price growth.

A total of 19,262 tonnes was sold at the latest auction, an increase of 11.8 percent from the previous one, the auction platform said.

GDT Events is owned by New Zealand’s Fonterra Co-operative Group Ltd , but operates independently from the major dairy company.

U.S.-listed CRA International Inc is the trading manager for the twice-monthly Global Dairy Trade auction.

A number of companies, including Dairy America and Murray Goulburn, use the platform to sell milk powder and other dairy products.

The auctions are held twice a month, with the next one scheduled for May 1.