In the first fortnightly auction for February the GDT index rose 5.9% on top of 2.2% and 4.9% increases in January.
The AgriHQ milk price forecast lifted 12c to $6.32 following the GDT lift and the dairy futures trading that followed.
The AgriHQ spot price (the milk price if all this season’s production sold at current GDT prices) rose 61c to $6.54, a substantial and encouraging increase for New Zealand dairy farmers.
The 5.9% rise in the GDT index was the biggest lift since November 2016. The index rose from 1002 to 1061, breaking out of a meandering pattern over the past 14 months around 1000.
Analysts said the unusual NZ season, with wet and dry extremes, and the predicted decline in milk production compared with the previous season had boosted world dairy commodity prices.
The average price for whole milk powder in the GDT sale rose more than $200 to US$3226/tonne, a 7.6% average gain, with some lots up 10%.
The NZX Dairy Derivatives market reacted, pushing WMP contracts for February and March delivery over $3300.
Butter milk powder put on 8.4%, butter 7.9% and skim milk powder and cheddar were up 7.2%.
Milk futures prices on the NZX derivatives market rose by 3c to $6.47/kg for September 2018 delivery and by 10c to $6 for the September 2019 contracts.
Westpac economist Anne Boniface said the bank had revised its estimate of the milk price upwards to $6.50/kg.
December and January milk collection in NZ was down about 3% on the previous corresponding months and Westpac expected the seasonal outcome to be in line with 2016-17.
Adverse weather notifications because of drought still applied in six regions: Taranaki, Manawatu-Whanganui, Wellington, West Coast, Otago and Southland.
“We continue to caution against extrapolating recent trends too far into 2018.
“Our view remains that growth amongst our key trading partners is likely to slow this year – led by China.”
ASB senior rural economist Nathan Penny said the GDT strength gave confidence to his $6.50 milk payout prediction.
But the season had been one of weather extremes.
“On the production side, we expect the improved weather will lead to production growth of 1% compared to last season.
“That said, there will be wide variations across the country given the varying extent of storms, drought and rainfall.”
Fonterra has said a “balanced” milk price will result from world WMP prices about US$3200 to $3500/tonne.
NZ farmers would be paid a sustainable milk price of $6-$7/kg, covering their production costs and making a good return on assets.
