Small recovery in dairy prices

Dairy prices have taken a small step towards recovery with a 3.8% lift in this week's GlobalDairyTrade auction.

It was a stronger outcome than had been signalled by futures markets and included a 7.5% jump in whole milk powder which brought prices back to around January levels. Skim milk powder was broadly unchanged.

The price moves were consistent with a recovery, albeit one that had ‘‘a long way to run'', ASB rural economist Nathan Penny said.

The divergence in whole and skim milk powder highlighted the current differences in New Zealand and European production.

Winding down in the New Zealand production season was supporting WMP prices, while the opposite was true for the European season and SMP prices.

The higher premium for later-dated WMP, as well as the higher price level, were consistent with the more advanced New Zealand production cycle.

With European production still high, the same urgency for SMP and milk fat buyers was not there, Mr Penny said.

Westpac senior economist Anne Boniface said the price lift would come as welcome news for ‘‘beleaguered'' dairy farmers.

On its own, it suggested some upside risk to the bank's $4.60 milk price forecast for next season. However, she cautioned against ‘‘getting too carried away'' by the result.

The sustained period of lower prices had given many buyers the opportunity to stock up and, while there had been preliminary signs of slower growth in European milk production, growing stockpiles would eventually be released on to the market, meaning a significant and sustained improvement in prices was likely to be some way off yet.

The volume of product being offered on the GlobalDairyTrade platform was low, in line with the seasonal decline in New Zealand production. Recent strength in the New Zealand dollar would also temper the good news for farmers, Ms Boniface said.

While any improvement in prices was good news for the sector, prices remained 12% below where they were a year ago, and more than 30% below a five-year average.

Those low prices were starting to dent confidence in both the agricultural sector and beyond, while this week's Reinz rural data hinted at a softening in the rural property market.

Looking ahead, further downward pressure on farm prices, particularly dairy farms, was expected by the bank.

Earlier this week, The New Zealand Herald reported that Fonterra continued to lose farmers to its competitors, based on latest production data.

When contacted, Oceania Dairy general manager Roger Usmar said the number of suppliers to its Glenavy factory had grown slightly and a further three had been added for the 2016-17 season.

Further growth was planned over the next few years as expansion occurred. The factory was officially opened by Inner Mongolia Yili Industrial Group (Yili) in November, 2014.

‘‘We have a healthy level of interest in farmers wishing to supply us, whether this be via increased herd sizes within existing ODL suppliers and/or other sources of supply,'' Mr Usmar said.