January 16, 2018 / 9:12 PM / a year ago

UPDATE 1-Global dairy prices surge as New Zealand production wanes

    * Global dairy prices rise 4.9 pct
    * Biggest lift in more than a year
    * Crimped NZ production weighing on prices - analyst

 (Re-casts, adds analyst comment, market reaction)
    By Charlotte Greenfield
    WELLINGTON, Jan 17 (Reuters) - Global dairy prices surged in
the second auction of the year as buyers anticipated sluggish
supply from the world's largest milk exporter, New Zealand.
    The Global Dairy Trade Price Index climbed 4.9 percent - the
largest gain in more than a year - with an average selling price
of $3,310 per tonne, in the auction held early on Wednesday.
    The lift was largely on the back of the world's biggest
dairy processor, Fonterra                  , slashing its New
Zealand milk collection as the country struggles with unusually
dry weather.             
    The index had risen 2.2 pct at the previous sale, according
to GDT Events, snapping a losing streak that had left farmers
worried that they would receive a lower payout in 2018.
    Nevertheless, analysts cautioned the gains might ease off in
coming months given global supply for some products remained
    "Poor milk production from NZ should be supporting prices
for WMP (whole milk powder) ... as NZ is the key supplier," said
Amy Castleton, analyst at AgriHQ. 
    "But global milk production is continuing to grow – notably
that coming out of Europe and the U.S. – so plenty more SMP
(skim milk powder), butter and cheese will make its way onto the
global market in coming months."
    Whole milk powder jumped 5.1 percent at the latest auction,
and skim milk powder also posted strong gains of 6.5 percent.
    Auction results can affect the New Zealand dollar         
as the dairy sector generates more than 7 percent of the
nation's gross domestic product.
    Despite the stellar result, the currency slipped 0.34
percent overnight to $0.7273 as it consolidated after a rally in
the past week.
    A total of 23,319 tonnes was sold at the latest auction,
falling 8.2 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 Feb. 6.

 (Reporting by Charlotte Greenfield; Editing by Robin Pomeroy)
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