The average price for whole-milk powder at Fonterra's December globalDairyTrade internet auction held yesterday, was 3.6% higher than November's event, $NZ5014 a tonne compared to $4840, and 95% higher than July's auction price of $2576.
The manager of globalDairyTrade, Paul Graves, said prices were now above the long-term average and while the rapid recovery in price did hold some concerns, it was symptomatic of market volatility, partially caused by falling milk supply in the United States and Europe.
Farmers there had responded to falling milk prices by cutting production, which Mr Grave said was steady to 1% lower than last year.
Given the size of those two dairy industries, the changes had a significant impact on global supplies, he said in an interview.
The sale result appears to justify Fonterra's 20% increase in its forecast milk payout last month to $6.05 a kg of milk solids, despite an exchange rate unfavourable to exporters.
Mr Grave said Fonterra remained confident in the long-term strength of markets, but warned as supply started to match demand, there would be some volatility in response to the rapid price recovery.
Yesterday's sale was boosted by buyers restocking supply chains, which Mr Grave said had been run down due to the recession.
"We saw a lot of aggressive buying as people filled their supply chains," he said.
While that had helped this sale, Mr Grave warned that processors were unlikely to rush to rebuild stocks to pre-recession levels as they took a more cautious business approach.
"Nobody wants to be left with too much stock."
Whole-milk powder prices ranged from $4746 to $5295.
The price for anhydrous milk fat (AMF) averaged $6125 a tonne, slightly below recent levels.
The next internet auction will be on January 5.
