Global Dairy Trade price index lifts 4.3 per cent at October 17 auction

The Global Dairy Trade price index bounced 4.3 per cent on October 17 - the fourth consecutive rise.

The market was strong with all commodities recording an increase, led by anhydrous milk fat, which was up 7.1pc.

Skim milk powder lifted 4.3pc, whole milk powder 4.2pc. and butter 2.9pc.

The bounce saw banks revise their forecast New Zealand farmgate milk price to levels the same as or close to the increased forecast price Fonterra announced on October 7.

The latest auction rise follows a 4.4 per cent lift on October 3, a 4.6pc increase on September 21 and a 2.7pc increase on September 5.

But pundits are still cautious as Chinese purchases are still below historic levels.

Westpac NZ senior agri-economist Nathan Penny said there were uncertainties around the outlook for Chinese dairy demand.

"Indeed, Chinese buyers haven't changed their buyer patterns materially," he said.

"Similarly, Chinese economic data is also inconclusive at this juncture."

ASB economist Nat Keall said China still was not all that active compared with its usual presence on global dairy markets.

Its buying volumes were similar to what it was buying at the same time last year, when the country was still largely locked down as its pursued a zero-COVID-19 policy.

Chinese domestic whole milk powder inventories remained high, although they were now stabilising.

"Meanwhile, the continued weakness of the Chinese economy is likely to continue crimping dairy consumption," he said.

But both economists are optimistic the market has now bottomed, although prices had yet to make up for the big losses in August.

Mr Penny said three things had helped turn the price tide.

"Firstly, prices hit very low levels, and this has led to increased buying interest, notably from the Middle Eastern and European buyers," he said.

"After all, everyone loves a bargain.

"Secondly, the declaration of an El Nino weather pattern has increased the risk of a drought and a contraction of supply later in the season.

"Lastly, oil prices have lifted over recent months, and this may have given further impetus to demand from Middle Eastern buyers."

Mr Keall said the forward contract price curve had been consistently flattish-to-slightly-upward tilting.

"That's a sign that underlying demand is indeed firmer and it isn't only a near-term shortage or some other squeeze skewing the overall figure," he said.

ASB has lifted it NZ forecast farmgate milk price NZ$0.75 a kilogram milk solids to $NZ7.35.

Westpac has lifted its forecast price to $NZ7.25/kg MS.

Fonterra's forecast milk price range is $NZ6.50 to $NZ8/kg MS with a midpoint of $NZ7.25/kg MS.

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