The Russian invasion of Ukraine could push dairy prices higher at tomorrow’s GlobalDairyTrade (GDT) auction, analysts say.
At the last auction, nearly two weeks ago, the average price at the auction rose 4.2% to $US4840 per tonne — its highest level in eight years.
Last week, dairy giant Fonterra increased its forecast farm-gate milk price for this season to a record midpoint of $9.60.
Now, they could be pushed even higher.
NZX dairy insights manager Stuart Davison was forecasting a "pretty decent lift" at the auction because dairy was already in short supply and the serious eastern European conflict in Ukraine would add to that.
Many other countries, including New Zealand, were already down on their product this season.
The conflict would encourage prices to rise even further because there would be even less supply in the market, Mr Davison said.
There had been some speculation that because Russia was a big milk fat buyer, the lack of demand from them would change the market.
"It is actually not that, it will be a lack of supply," he said.
Other European countries would be "under the pump" because of a lack of energy and grain usually sourced from Russia and Ukraine to produce milk, Mr Davison said.
Craigs Investment Partners was also expecting to see an increase at tomorrow morning’s auction with a $10 payout not out of the question.
Broker Peter McIntyre said global milk prices typically followed the cue of oil prices.
Milk production and supply in Europe and the United States was continuing to be affected by the high cost of the feed and that was not expected to change in the coming months, especially given much of Europe’s grain came from Ukraine.
That was on top of very "strong demand" for milk globally.
"Those supply and demand dynamics are supporting the price at the moment," Mr McIntyre said.
With Fonterra’s midpoint of $9.60, a payout of $10 was "definitely on the cards".
That represented about $14billion for the New Zealand economy, which would be good for farmer’s balance sheets and reinvestment into on-farm improvements and productivity.
"It is looking exceptionally good for the dairy sector."
Commodities, both hard and soft, had been "well bidded up" in the inflationary environment.
"Off the back of that, all things being equal, you would have to suggest it will be another strong auction," Mr McIntyre said.
