January 2, 2018 / 9:45 PM / in a year

UPDATE 1-Dairy prices rise as dry weather crimps NZ production

    * Dairy prices rise 2.2 pct
    * Dry conditions in NZ crimp supply forecasts

 (Recasts, adds market reaction and analyst quote)
    By Tom Westbrook
    SYDNEY, Jan 3 (Reuters) - International milk prices posted
their sharpest rise since May on Wednesday, as supply tightened
in the world's largest exporter, New Zealand.
    The Global Dairy Trade Price Index (GDT) gained 2.2 percent
at the first auction of the year, after the world's biggest
dairy processor, Fonterra                  , dropped its
forecast for NZ milk collection last week for the second time in
as many months. 
    The average selling price was of $3,124 per tonne, with
prices for whole milk powder - the most widely traded product - 
posting the strongest gain, 4.2 percent.    
    "There's a growing realisation that it's quite serious, the
situation in New Zealand, and I think prices have reacted to
that," Susan Kilsby, dairy analyst at Agri HQ told Reuters.
    "It's really dry right across New Zealand's dairy regions,
and that means lower pasture growth and subsequent low milk
    Fonterra last week said it expected the dry weather to
persist, and cut its collection forecast for the 2017-2018
season by nearly 3 percent.             
    The New Zealand milk co-operative, which is owned by about
10,500 farmers, controls nearly a third of the world dairy
trade. It already announced last month it was cutting its
forecast payout to farmers for the season by NZ$0.35  ($0.25) to
NZ$6.40 per kg of milk solids.             
    Skim milk powder prices rose 1.6 percent, and butter prices
rose for the first time since October.
    Auction results can affect the New Zealand dollar        as
the dairy sector generates more than 7 percent of the nation's
gross domestic product.
    The currency hit a ten-week high of $0.7128 overnight, after
the auction, though this was aided by a weakening U.S. dollar.
    The GDT index had fallen 3.9 percent to a 15-monnth low at
the previous sale, and had dropped in five of the last six
auctions, according to GDT Events, which is owned by Fonterra
and runs the sale independently of the dairy giant. 
    A total of 25,400 tonnes was sold at the latest auction,
falling 14.2 percent from the previous one, the auction platform
said on its website.
    A number of companies, including Dairy America and Murray
Goulburn         , use the platform to sell milk powder and
other dairy products, with roughly half of buyers based in China
as traders there seek to supplement flagging domestic milk
    The auctions are held twice a month, with the next one
scheduled for Jan. 16.
($1 = 1.4071 New Zealand dollars)

 (Reporting by Tom Westbrook and Bangalore Commodities desk;
Editing by Robin Pomeroy)
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