International dairy prices continue their upward trajectory with prices up 3.3 per cent in the Global Dairy Trade auction on Tuesday night.
The $US3309 a tonne average price is 10.8pc higher than at the start of the year.
The latest rise points to the emergence of a new dairy price cycle, according to New Zealand based ASB bank senior rural economist Nathan Penny.
Rabobank is also expecting global prices to recover.
Prices of key commodity groups were all up at the auction, including whole milk powder and cheddar (both up 6.0pc), buttermilk powder (up 11pc) and butter (up 3.7pc).
Only skim milk powder (down 4.3pc) and rennet casein (down 0.1pc) defied the trend.
The increase was the seventh consecutive one on GDT following falls across the second half of 2018.
Mr Penny said the reaching of the peak in NZ production growth and strong global demand boded well for the milk price for this season and next.
The auction result supported the idea that a new dairy price cycle was emerging.
“However, it is still early days,” he said.
“Dairy prices are just now getting back near to their recent historical averages in US dollar terms.
“In other words, we need to see further price increases before we can confirm that the new cycle has actually kicked in.
“Nonetheless, the signs are promising.”
Mr Penny said some of the price lift could be put down to recent dry and hot weather in New Zealand.
Although production to the end of January was up 5.6pc on last season, ABS did not expect any further gains.
“Dairy production is falling in Australia, while the European Union and US production growth is a modest 1pc per annum or so,” he said.
“Moreover, global dairy stocks are now much lower than in previous years.
“Lower stocks mean less of a buffer for dairy markets in the event of any supply shock.”
Mr Penny said global demand was also firm.
Fonterra had noted last week global demand had strengthened, driven predominantly by stronger demand from Asia, including Greater China.