Global Dairy Trade prices lifted 3.2 per cent at auction on Tuesday night, as the Chinese economy starts to rebound.
But pundits are still cautious about prices for next season - forecasting a price fall in 2023/24 as global economic conditions tighten and milk production rises in some regions.
Tuesday night's auction saw broad-based increases with milk fats leading the charge.
Butter was up 6.6pc, anhydrous milk fat 4.8pc and butter milk powder 2.0pc.
Cheddar rose 2.3pc, while the key whole milk powder index lifted 3.8pc.
Skim milk powder was the only commodity to not record an increase, holding steady.
Westpac New Zealand senior economist Nathan Penny said the rebound stemmed from the lifting of China's COVID-zero policy.
"With Chinese consumers now largely free to move about and return to restaurants, cafes and bakeries, we anticipated that products like butter would benefit most from looser COVID restrictions," he said.
"Indeed, that was the case overnight, with butter posting the largest price rise.
"Over coming months, we expect prices to gain further momentum as Chinese demand continues to rebound.
"For example, we forecast the Chinese economy to grow by 6pc over calendar 2023 from 3.5pc in 2022 and for strengthening household spending to be a key driver of economic growth over the year."
But ASB economist Nat Keall said the forecast Chinese growth would represent one of its weakest expansions since 1990.
"What's more both Chinese WMP production and inventories remain at historic highs," he said.
"That should keep demand from lifting too dramatically barring a drastic change in dynamics."
Mr Keall also warned about global supply growth.
"After a lengthy period of steep annual declines, global milk production beyond China looks to be tentatively on the turn higher too," he said.
ASB and Westpac have held their forecast dairy prices for the 2022/23 season.
But ASB is forecasting a fall in 2023/24.
"Our view rests on the expectation dairy prices to move lower over the second half of 2023 and early 2024," Mr Keall said.
"We are more pessimistic on the outlook for the global economy this year.
"Softer global growth is a negative for the consumption outlook and is likely to weigh on demand and commodity prices in general."
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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.
