Dairy markets lifted sharply this week as supply fears from the recent drought in New Zealand helped improve market sentiment. At this week’s GDT auction in New Zealand, the average price of dairy commodities increased 5%, which is the fastest price growth in over a year. This is the second consecutive rise in the benchmark dairy index, which has helped to arrest the slump in dairy prices in the run-up to Christmas.

This week’s positive GDT result was driven by firmer prices across the board for fats and protein. On the powder side, whole milk powder (WMP) prices increased 5% above the $3,000/t (€2,500/t) mark.

Even more welcome was the bounce in skimmed milk powder (SMP), with prices increasing 6.5% this week above $1,800/t (€1,500/t). On the fats side, butter prices jumped almost 9% to reach $4,900/t (€4,000/t), while cheddar prices increased 5% to $3,490/t (€2,850/t).

The lift in prices at this week’s GDT comes after Fonterra, the New Zealand dairy giant, announced to markets that milk collections in December fell sharply by 6% compared with 2016, as drought hit milk production across the country. As a result, Fonterra lowered its forecast milk supply for the full 2017/18 season to below 1.5bn kg of milk solids.

In Europe, dairy prices are mixed. Butter prices are holding steady around €4,000/t, while WMP prices increased slightly to €2,440/t. However, SMP has fallen to a new low over recent days with prices now at record lows of €1,340/t.