The GDT prices rose after Fonterra slashed the volume of product on offer.
The slump in world prices had been blamed on world supply exceeding demand.
However, though Fonterra cut its GDT offering the latest milk production figures show a sharp rise in the amount of milk collected in New Zealand at the start of the season.
The Dairy Companies Association’s latest milk production statistics show 19 million kilograms was collected in July.
The was a significant increase on the 16.8m kg collected in July last year and the 13.1m collected in June.
Industry commentators had predicted a fall in milk production this season but many farmers told a New Zealand Farmers Weekly survey they intended to increase output to compensate for low prices.
A 10.9% market rise on the first day of September followed the 14.8% rise in the middle of August.
Fonterra chairman John Wilson said world prices were starting to move back towards the cost of milk production.
The recovery had a way to go to secure the $3.85/kg milksolids forecast but prices had moved up relatively quickly, which was a good sign.
“As farmers, we need milk powder in the mid-US$3000/tonne range, so we just watch and wait until that is achieved.
“That has to happen because it is uneconomic to produce milk for less than that return.
“In Europe, costs of milk production are significantly above the farmgate prices and we are seeing that farmer protests are the result.”
Fonterra was watching demand very carefully, especially in emerging markets.
It had not seen a big lift in demand yet because there was still a lot of product left in stores around the world.
In the September 1 GDT event whole milk powder prices rose 12.1% and skim milk powder and anhydrous milk fat prices both increased by 11.7%.
But WMP prices remained around US$2000/tonne and SMP at $1700, both very low levels historically.
“A reduction in global milk production must occur to allow for a sustained recovery in dairy commodity prices.”
Susan Kilsby
AgriHQ
AgriHQ dairy analyst Susan Kilsby said her computer model of the farmgate milk price had risen 34c to $4.19 and the snapshot milk price rose 74c to $4.13 (the return to NZ farmers if all the season’s production sold at the latest GDT prices).
Fonterra had sharply reduced the amount of product offered on GDT, down 50% from this time last year.
“The lower volume is lending support to the market in the short-term.
“But a reduction in global milk production must occur to allow for a sustained recovery in dairy commodity prices.”
Westpac senior economist Michael Gordon agreed, saying the market was buying the recent predictions of lower NZ milk production but would need to see that eventuate for prices to continue to rise.
MORE: try the AgriHQ Milk Price Predictor at agrihq.co.nz/toolbox
