Dairy exporters will be watching intently Fonterra's globalDairyTrade internet milk-powder auction next month for reaction to news drought has forced Russia to ban wheat exports.
Fonterra's managing director of global trade, Kelvin Wickham, said Europe relied on Russian wheat and grain to feed livestock, and an export ban could mean a sudden decline in milk production.
The drought, understood to have caused a 25% decline in Russian grain production, and Russia's trade move could send grain prices soaring and also reduce current milk production which would have international repercussions for many agricultural commodities.
Mr Wickham said there was a lot of sentiment around what could happen, but this was yet to flow in to buyer behaviour, and that was why he would watch with interest next month's two globalDairyTrade auctions, especially for contracted supply in three to five months.
"At the moment, people are a bit more confident of supply at these prices," he said.
Northern hemisphere dairy farmers were heading in to autumn, and as winter drew near they would rely on feedstock such as wheat to maintain production.
Mr Wickham said sentiment that grain prices could rise was occurring at the same time as southern hemisphere pasture-based dairy suppliers were ramping up their production, which would also have to be factored in with any pricing forecasts.
The first of twice-monthly globalDairyTrade auctions will be held on September 1.
