Prices bounced back on the Global Dairy Trade auction on Tuesday night with significant gains across the board.
The GDT price index was up 4.0 per cent to an average price of $US3927 a tonne.
All commodities posted gains with skim milk powder leading the charge up 7.3pc to $US3247 a tonne.
Lactose was up 6.4pc, butter 3.7pc, cheddar 3.6pc, whole milk powder 3.3pc, anhydrous milk fat 3.1pc and butter milk powder 3.0pc.
The result was the second consecutive increase, after a 0.3pc increase on August 17 broke a four-month series of falls.
Analysts say the result points to a balanced global market and support the strong price forecasts for this season.
ASB economist Nat Keall said while too much emphasis should not be placed on a single auction result, this event had particular significance.
It was the first auction of the spring and the first good signal on where the market lay.
"And as the NZX notes, gains at this auction could drive further strength in a fortnight's time as buyers who've missed out this time decide to play a bit more aggressively," he said.
"Success begets success, in other words.
"What we've seen looks pretty positive, supporting our view that the farmgate milk price for the 21/22 season is likely to remain very strong in a historical sense."
Westpac senior agri-economist Nathan Penny the global dairy market was largely balanced at this point, with prices settling at a healthy level.
It was sticking with its healthy price forecast for the season.
"At the same time, we continue to note that it's relatively early in the season and there remains a wide range of possible milk price outcomes on both sides of this figure," he said.
Strong demand from South-East Asia
Mr Keall said the most interesting dynamic this auction was the shift in demand away from China.
"Indeed, North Asia (i.e. China) bought far less than at previous auctions, with the South-East Asia hot on its heels," he said.
"We don't think it's a worry that Chinese buyers appear to be taking their foot of the gas, given Fonterra's statements over recent months that it's been selling a lot of product off auction (a claim that the latest trade data from Stats NZ seem to bear out).
"If anything, its positive to see volume spread a bit more broadly."
Mr Penny said on the surface, global dairy markets appeared to have cleared the massive lift in New Zealand production over the autumn.
"However, the major movement of product off the auction platform by Fonterra clouds this picture to a degree," he said.
Soft European production in recent months was a factor in the better result.
From now on, New Zealand's spring production would be the key for price movement in either direction.
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Carlene Dowie
Carlene Dowie is the editor of the Australian Dairyfarmer magazine and has more than 30 years' experience as a rural journalist.
Carlene Dowie is the editor of the Australian Dairyfarmer magazine and has more than 30 years' experience as a rural journalist.
