Butter surges as overall prices rise

06 Sep, 2017 09:51 AM
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Butter lifted by 3.8 per cent, having enjoyed a 35 per cent increase this year.

Dairy prices, led by butter, have risen 0.3 per cent at the latest global dairy auction to an average of US$3323 per tonne.

The latest prices follow a three-week break, with a dip of 0.4 per cent recorded at the last auction.

Analysts were predicting a small rise in the overall index led by whole milk powder (WMP) based on the premiums that the futures market was showing.

The price for WMP, New Zealand's key product because it largely informs the prices farmers receive, fell 1.6 per cent to US$3100 per tonne.

Butter lifted by 3.8 per cent, having enjoyed a 35 per cent increase this year.

ASB economist Nathan Penny said he expected butter and milk fat prices could surge higher towards the end of the year.

NZ Federated Farmers dairy group chairman Chris Lewis said poor weather had had an impact on production during the early part of the season in New Zealand.

"It's been a challenge with rain, rain and more rain. I don't know any farmers who aren't tracking below their usual production."

​Mr Penny said he was hearing the same story about less milk being produced because of wet weather.

"If it continues, all prices will go higher and open up the possibility of a $NZ7+ per kilogram of milksolids price," he said.

He said today's auction result hinted that butter prices were set for another surge.

Across August, after auction record highs this year, butter prices dipped a little over 6 per cent.

"Where to next for butter? Are prices going to consolidate around this new level or is there something left in butter's tank," he said.

"In our view, butter's fall during August is akin to a motor racing pit stop. Pull over, refuel, change tyres and then go again. In other words, we think that butter and milk fat prices can go higher yet." Mr Penny.

Higher butter prices coupled with lower production would be a further factor in a potential lift for the farmgate forecast.

At present Fonterra's forecast price for New Zealand farmers for the season is $NZ6.75 (before dividends).

It is set to update the forecast in two weeks, at the same time it presents its annual financial results.

Fonterra is directing more of its milk collection towards butter and other milk fat products to capitalise on global demand.

Mr Lewis said there were reports of a butter shortage in Europe, although significant tariffs punished New Zealand exports.

Mr Lewis said stricter environmental regulations were also having an impact. In Canterbury, for example, dairy conversion consents were at their lowest level for 10 years.

The 173 participating bidders at the auction overnight purchased a total of 33,501 tonnes of product.

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