Global dairy prices soar in latest auction

International milk prices rallied in the overnight Global Dairy Trade auction, adding to the view that the market may be on the road to recovery.

The GDT Price Index, which covers a variety of products and contract periods, rose 12.7 percent, with an average selling price of $2,731 per tonne, in the auction held Tuesday.

Whole milk powder prices, which make up the bulk of the auction, soared 18.9 percent while skim milk powder prices rose 3.0 percent and butter rose 14.1 percent.

"It was a stunning result and it couldn't have come at a better time for our farmers. I think it is now safe to say the market has turned a corner," said AgriHQ dairy analyst Susan Kilsby.

Until recently, dairy was the backbone of New Zealand's economy, representing around 25 percent of exports. But dairy prices have dropped sharply from their record highs in 2013, due to China's economic slowdown and global oversupply.

Sliding prices have put farmers under pressure, with more than 85 percent estimated to be operating below breakeven levels.

According to Kilsby, there was strong buying activity out of China and South East Asia, driving the lift in prices. Kilsby also said she is more confident that current prices will be able to hold up "as global milk supply is now retracting rather than growing."

The auctions are held twice a month, with the next one scheduled for Sept 6.

The auction platform was set up by Fonterra, the world's largest dairy exporter, and is operated by trading manager CRA International.

Participants include Fonterra, Amul, Arla Foods, Arla Foods Ingredients, Dairy America, Euroserum and Murray Goulburn. Products traded on the twice-monthly auction include whole milk powder, skim milk powder, butter, cheese, and anhydrous milk fat, among others.