This week’s GDT auction saw a surge in the benchmark dairy index with average selling prices up 11.4% to $3,327/t. The increase in the index was primarily driven by whole milk powder (WMP) with prices spiking a massive 20% during Tuesday’s event to almost $3,320/t.

Skimmed milk powder (SMP) prices also saw strong gains with average prices rising 6.5% to $2,330/t. However, this means that the premium between WMP and SMP prices has widened significantly to almost $1,000/t as traders face up to constrained WMP supplies in the not-too-distant future.

As New Zealand is the world’s largest exporter of WMP, recent noises on declining milk collections from the country’s largest dairy processor, Fonterra, have helped to push up milk powder prices on the global market.

Tightening supply picture

Indeed, for this week’s GDT auction, Fonterra reduced its WMP offering by more than 18% to 14,600t compared with the last auction. On top of this, Fonterra has reduced its forecast WMP supply for all GDT auctions over the coming year by a total of 10,200t.

The processor cited a sharp fall-off in milk supply due to the wetter than normal spring the country is currently experiencing. In the Waikato region of the north island of New Zealand, Fonterra says milk collections are back by about 14% in October compared with last year.

The sharp increase in WMP prices at this week’s GDT auction is easier to quantify in this context. Dairy buyers will have looked at the emerging supply picture in New Zealand and moved to secure supplies in the expectation that prices will rise further in the weeks and months ahead.

As well as the two milk powders, there were also gains in the average selling price of cheddar (+1%), butter (+4%) and anhydrous milk fat (+2.6%). In contrast, there were declines in the price of lactose (-4%), casein (-5%) and buttermilk powder (-5.4%). The total volume of product offered for sale at this week’s GDT was less than 27,750t, which is back significantly from the 32,000t of product offered at the last GDT auction.