International milk prices rose for the second consecutive fortnightly auction on Tuesday due to decreased volumes on offer and growing expectations that supply in New Zealand, the world's largest dairy exporting country, may ease in the coming months.
The Global Dairy Trade index of average selling prices of wholesale dairy products rose 3.6 percent to 784 at the Fonterra dairy co-operative's first auction of the year, extending its rise from 739 hit in early December, its lowest since August 2009.
A total of 33,669 tonnes of dairy products was sold at the latest auction, falling 4.9 percent from the previous sale, New Zealand's Fonterra, the world's largest dairy processor, said on its website (www.globaldairytrade.info).
"Prices have lifted largely because Fonterra has reduced auction volumes but also because it recently revised down production growth for the season and that may have seen a reassessment of (supply) expectations," ASB bank economist Jane Turner said.
A roughly 50 percent drop in global dairy prices in 2014 has prompted Fonterra to slash the price it pays to its farmer shareholders. As a result, it has downgraded its production outlook for the season, which analysts say may help boost global prices in the coming months.
The rise at Tuesday's auction was led by higher prices paid for butter and butter milk powder which rose 13.2 percent and 10.5 percent respectively, while prices for whole milk powder rose 1.6 percent to $2,307 per tonne, edging up from a near 5 1/2-year low of $2,229 hit last month.
The GDT index is starting to show signs of life after falling for much of 2014 on the back of increased global production, reduced demand from China and a European supply glut resulting from Russian dairy import bans.
Whole milk powder prices have dropped on a lull in demand from China, where buyers had stockpiled the product in 2013 and early 2014 for use in infant milk formula and other consumer goods for its growing middle class. (Reporting by Naomi Tajitsu in Wellington and Bengaluru Commodities desk; editing by Andrew Hay)