The higher prices were propelled by dwindling milk supplies, market uncertainty around the fall-out from the Ukraine crisis and ultimately what the combination will mean for global dairy trade, RaboResearch senior agricultural analyst Emma Higgins said.
Global dairy prices hit their highest level ever on tight supply and fall-out from the Ukraine crisis.
“This train isn’t slowing down,” NZX dairy insights manager Stuart Davison said.
The GDT index lifted 5.1% to an average price of US$5065 (NZ$7509). Whole milk powder rose 5.7% to US$4757 while cheddar rose 10.9% to $6394.
The GDT price index eclipsed both events in April 2013, the previous two largest GDT price index results.
The higher prices were “propelled by dwindling milk supplies, market uncertainty around the fall-out from the Ukraine crisis and ultimately what the combination will mean for global dairy trade,” RaboResearch senior agricultural analyst Emma Higgins said.
According to Higgins, China scooped up the majority of whole and skim milk powder, anhydrous milk fat and butter. The Middle East procured the bulk of the butter.
On the supply side, NZ milk production fell 6.1% year-on-year in January and in the US, milk flows also took a hit, she said.
The worsening supply is driven by crispy weather for the first month of 2022 here locally in NZ, while feed cost pressure impacting on margins in the US has hampered milk flows over there, she said.
Also, while “the physical fighting in Ukraine is localised, the effects of war will be far-reaching and have a ripple effect on global communities and economies,” Higgins said.
Russia and Ukraine are significant players in the global trade of major commodities: grains, energy and metals.
“These commodities are being swept up in the fighting – either physically or via the results of crippling sanctions on Russia,” she said.
Combined, they export 24% of global wheat, barley and corn, Higgins said.
In the short term, however, she expects further upside to come for dairy commodity prices. Food security concerns for some buyers will be high.
The still-rising dairy prices will put further pressure on Fonterra to keep lifting its payout forecast for its farmers.
Last week, strong global milk prices led Fonterra to lift its forecast farmgate milk price to a fresh record, while still maintaining its earnings guidance range.
The co-operative now expects to pay farmers $9.30-$9.90 per kilogram of milk solids in the current season, up from a prior forecast of $8.90-$9.50/kg MS.
The midpoint is a cash injection of $14 billion for NZ’s rural economy, Fonterra said.