Global dairy prices rebounded in the overnight auction, snapping three consecutive falls.
The Global Dairy Trade (GDT) index lifted 3.2%, boosted by a 3.8% gain in whole milk powder prices.
Whole milk powder – which has the biggest influence on Fonterra’s milk price – sold at an average US$3,329 ($5,288) a tonne.
“Significant price gains across each contract period highlights that buyers were chasing product across the board,” NZX dairy insights manager Stuart Davison said.
The lift will add to the view that whole milk powder prices were expected to increase on the way into the second half of 2023, he said.
BNZ senior markets strategist Jason Wong said it was a “strong result in light of the rebound in the US dollar”.
The result “reduces some of the downside risk that has been developing for this year’s milk payout”.
Fonterra currently expects to pay its farmer shareholders a range of $8.50-to-$9.50 per kilogram of milk solids for the current season.
According to Davison, north Asian participation boded well, with buyers taking nearly two-thirds of the total whole milk powder volume sold; 15% more of the total than the previous event and 5% more than at the equivalent event a year earlier.
He also highlighted the 6.6% gain in butter prices, noting the last time butter made any gain was the November 1 auction, with prices sliding since then.
The overnight gain almost recovered losses over the past three months, coming in at only US$123/tonne, or 2.5%, short of that last price peak.
Butter sold at an average US$4745 a tonne.
A second consecutive gain for GDT cheddar prices was also a surprise, given global cheese prices largely declined over the past six weeks.
Cheddar prices lifted 2.3% to US$4980 a tonne.
February is “set to be a volatile month for dairy commodity prices”, Davison said.
The sudden influx of trading registered on the SGX-NZX dairy derivatives market earlier in the week buoyed the premise that some market participants expected dairy prices to push higher over the coming months, he said.
“As always, the next GDT result is the defining factor of truth in this market, only then will we know if this was a ‘dead cat bounce’ or a post-bottom market shifting higher.”
