An extraordinary Global Dairy Trade auction result is being viewed as a win for both milk producers and the Southland economy.
Dairy farmers woke up to the news on Wednesday that the Whole Milk Powder index had risen a whopping 21 percent, up to $5985 per metric tonne, following the latest Global Dairy Trade auction.
It is the highest price for Whole Milk Powder since May 2014.
It was also the eighth increase in a row and the 11th out of the last 12 auctions.
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Dairy cows waiting to be milked in a shed at Drummond, Central Southland, on Wednesday.
Dairy farmers were both shocked and delighted by the latest large price spike.
Southland dairy farm owner Brent McKenzie who has farm interests in both Otama and Morton Mains said it was a very positive result for not only farmers but the economy in general.
When prices were good for farmers it often flowed through to buying more machinery and other spending in the wider community, McKenzie said.
Everyone gets a bit of it. Its the old story; when farming is going well [New Zealand] is going well.
New Zealand Institute of Economic Research data shows dairy sector spending accounted for more than 10 percent of Southlands GDP. The dairy industry is also Southlands largest employer.
McKenzie tempered the excitement by adding that the rapid rise in price also made him a touch nervous. If prices can rise that quick, they can drop just as fast, he said.
Southland Federated Farmers dairy chairman Hadleigh Germann agreed.
He said the auction was a great result, but he felt it was best that those in the dairy sector did not get ahead of themselves.
Germann suggested it would be wise that farmers used any potential cash surpluses to pay down debt, rather than spend up large.
He acknowledged the latest price spike would at least provide a nice boost to dairy farmers’ morale.
For a while, in the background, there had been positivity around the economics of the dairy sector, Germann said.
However, he said many of the recent headlines attached to farming had been negative, in regard to the environmental debate, and that had weighed on farmers.
Fonterra chief executive Miles Hurrell labelled the auction result as pretty extraordinary.
Fonterra is a publicly-traded dairy co-operative owned by around 10,500 New Zealand farmers.
Hurrell said Fonterra was now running the numbers, in regard to its forecast Farmgate Milk Price following the latest Global Dairy Trade results.
While GDT results are one key input to the Farmgate Milk Price, there are many other factors we need to consider including, how far we are through the season, our sales book, foreign exchange, and any ongoing impacts from COVID-19, he said.
Rabobank’s senior dairy analyst Emma Higgins said the latest milk price spike was because of Chinese demand.
Ninety-six percent of the milk produced in New Zealand is exported overseas.
As of the middle of February, Higgins said the average milk price was beginning to ease back. However, she felt that change was down to seasonal weakness following the Chinese New Year, in addition to a resurgence of Covid-19 hotspots, rather than the start of a significant adjustment in Chinese milk prices.
LATEST GLOBAL DAIRY TRADE INDEX
Anhydrous Milk Fat: Up 7.4 percent to $8131 per metric tonne
Butter: Up 13.7 percent to $7990 per metric tonne
Butter Milk Powder: Down 0.3 percent to $4312 per metric tonne
Cheddar: Up 1.3 percent to $5870 per metric tonne
Lactose: Up 4.9 percent to U$ 1752 per metric tonne
Skim Milk Powder: Up 3.5 percent to $4528 per metric tonne
Whole Milk Powder: Up 21 percent to $5985 per metric tonne