October 19, 2016 / 1:15 AM / in 9 months

UPDATE 1-Global dairy prices get lift from tighter supply, spurring recovery hopes

3 Min Read

(Updates and recasts to add analytical comment from economists)
    WELLINGTON, Oct 19 (Reuters) - Global dairy prices rose in
an overnight auction on Tuesday  paring losses from the previous
auction earlier this month, and adding to economists'
expectations prices are recovering as supply tightens.
    Prices in the fortnightly global dairy trade auction rose
1.4 percent to an average selling price of $2,965 per tonne,
resuming a two-month rally briefly blemished by a 3 percent fall
in the Oct. 4 auction. 
    Whole milk powder, which makes up the bulk of the auction,
rose 2.9 percent. Longer-dated contracts saw the biggest gains.
    The latest auction "adds some confidence that most or all of
the previous price gains will be maintained," BNZ Senior
Economist Doug Steel said in an email to Reuters. 
    Steel said declining milk production in many key areas
around the world had underpinned price gains over recent months,
including New Zealand "where far too much rain is denting
production in the run up to peak in October."
    Fonterra, the world's largest dairy exporter and one of the
participants in the auction, recently cut back its supply for
the auction as wet conditions crimped production.
    A total of 31,525 tonnes was sold at the latest auction,
down 7.1 percent from the previous one. 
    The price gains are feeding farmers' hopes that the worst is
over following a major slump in dairy prices due to China's
economic slowdown and global oversupply.
    ASB Senior Rural Economist Nathan Penny said while prices
may remain choppy over the coming auctions, New Zealand's "weak
production is largely locked in." Penny said in a note that he
expects Fonterra to pay farmers to NZ$6.00 per kilo of milk
solids, up from the dairy giant's current forecast of NZ$5.25
for the current season.
    Fonterra last lifted its payout on Sept. 21, when it
indicated further revisions were likely given ongoing volatility
in global dairy markets. 
    Auction participants include Fonterra, Amul, Arla Foods,
Arla Foods Ingredients, Dairy America, Euroserum and Murray
Goulburn. Products traded include whole milk powder, skim milk
powder, butter, cheese, and anhydrous milk fat.    

 (Reporting by Rebecca Howard; Editing by Jane Wardell and Eric
Meijer)

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