Butter prices took the biggest hit in the Global Dairy Trade auction last night with a 4.9 per cent drop.
The butter fall contributed to a 1.6 per cent drop in the price index, despite an increase in the key whole milk powder (WMP) price of 1.3 per cent to US$3155.
New Zealand based ASB economist Nathan Penny said prices were consistent with its forecast $6.75kg/MS for the 2017-18 season.
"Taking a step back, it's not altogether surprising that milk fat prices took a breather, given the price explosion over recent months," he said.
"Butter prices, for example, have surged over 35 per cent this year, while anhydrous milkfat prices have lifted a more modest, but still robust, 18 per cent. Both butter and AMF have set multiple auction record highs over 2017.
"However, we suspect that the slowdown in milk fat prices may be temporary.
"Demand continues to surge and inventories are now very tight.
"As supply struggles to keep up, we expect that any further lift in milk fat prices will lift dairy prices more generally.
"Such a lift would break WMP prices out of their holding pattern of recent months."
AgriHQ said the market struggled to absorb the extra volume of product available on GDT "which does not bode well for the coming months when offer volumes continue to lift in line with the seasonal lift in New Zealand's milk supply".
There were 129 winning bidders at the auction, an increase on the 115 winning bidders from two weeks ago. There were more winning bidders from North Asia, South East Asia and Oceania, and the Middle East.
A total of 32,768 tonnes of products were sold last night compared with July 18 when 26,688 tonnes was traded.
NZ Federated Farmers said farmers would be pleased with last night's global dairy auction prices as prices generally flatlined.
Dairy group spokesman Chris Lewis said it was offering a chance for a breather after the roller coaster rides of recent years.
He said the latest Federated Farmers confidence survey showed dairy and arable farmers were the most optimistic, and all regions were showing more optimism compared to the last survey, in January this year.
"With prices stabilising but 50 per cent up on what they were last year, it reflects farmer confidence coming into this season," Mr Lewis said.
"While prices are up 1.3 per cent for WMP and down a bit overall, it won't be fazing us after the volatility we've had for the last five years. The futures market shows prices staying stable through to March-April next year which is great news."
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