Butter prices have hit another record high, surpassing $US6000/metric tonne in this week's GlobalDairyTrade auction.
A health trend back to milk fats, along with tighter global supply, has meant prices soared this year. It was butter's 10th record high, while anhydrous millk fat (AMF) has set four records.
Overall prices were largely unchanged in this week's auction, with a 0.2% increase. Whole milk powder (WMP) rose 0.3%, the rise marginally less than had been indicated by futures prices which indicated a 1%-3% lift.
Skim milk powder (SMP) prices fell 3.2% despite Fonterra's announcement it would no longer trade Australian SMP, ASB senior rural economist Nathan Penny said.
The Australian offering was small, accounting for about 3% of Fonterra's total SMP offering in July.
Prices overall continued to be in a holding pattern and that was expected to continue over coming months, Mr Penny said.
While butter prices would eventually fall, generally higher butter or milk fat prices were ''here to stay''.
''Demand has fundamentally shifted higher as consumers now accept that butter is no longer bad for you.''
That was good news for dairy producers globally, including New Zealand, and Fonterra was now ''spoilt for choice''.
''Fonterra's recent added production flexibility means it can more easily optimise its production mix. In layman's terms, it can now sell more higher-priced butter and AMF and less lower-priced WMP.''
The end result should be a higher milk price and, if WMP prices rose or milk fat prices fell, Fonterra could always switch back again, he said.