Butter price continues to increase

Fonterra's fortnightly GlobalDairyTrade auction ticked up, with the overall price index rising 0.9% against the previous auction.

Analysts are speculating the start to New Zealand's new season could yet have more dairy price increases, albeit during a period of constrained production, but forecasts are now raising the possibility of a payout rise to $7 per kilogram of milk solids.

Fonterra's current season forecast sits at $6.75, Synlait's at $6.50 and Westland Milk Products in a range of $6.40 to $6.80.

Butter set an eighth price record for this year. At the same time, domestic butter hit a record $5.49 for a 500g block in recent weeks, more than double its price at the same time last year.

At the previous auction, butter rose 3.8% and for this week's auction it rose 1.2%, to hit $US6026 ($NZ8179) per tonne.

ASB rural economist Nathan Penny said butter prices were ''continuing to boom''.

''Indeed, overnight, butter prices have set their eighth auction-record high already this year,'' he said.

As mentioned in ASB's previous report, the wet New Zealand weather and the global butter shortages were a recipe for higher dairy prices, Mr Penny said.

He said New Zealand's wet weather ''rolls painfully on'' and was beginning to weigh on production.

''August production, for example, was down 1.5% versus August last season. While it is still early spring, if the rain continues, production will stall further and then send dairy prices higher,'' Mr Penny said.

The global butter shortage was not expected to correct itself until sometime in 2018 and in the meantime, all scrutiny was on New Zealand production.

''If the weather doesn't improve soon, we expect to lift our milk price forecast to $7 per kg or above in the next month or so,'' Mr Penny said.

During the latest auction the crucial whole milk powder price gained 0.6% to $US3122 a tonne, AgriHQ dairy analyst Susan Kilsby told BusinessDesk.

''Price gains [were] recorded in the nearby delivery contract but weaker prices [were] recorded in the later delivery contracts,'' Ms Kilsby said of whole milk powder.

''The price for regular grade whole milk powder for November delivery fell less than 0.2%.

''Extra product was added into this contract last week so it was good to see that the market was able to absorb the additional whole milk powder without too much of a negative impact on the price.''

Skim milk powder fell 1.2% to $US1920 a tonne, while cheddar declined 1.9% to $US4032 a tonne.

''Skim milk powder pricing remains weak and this is unlikely to change while there is so much stock held in Europe,'' Ms Kilsby said.

- Additional reporting BusinessDesk