The GDT bounced back slightly at this week’s event, with the benchmark dairy index lifting 1.4%.

With less than 32,000t of product offered for auction, the increase was driven by gains in the price of whole milk powder (WMP, +2.9%), butter (+2.6%) and anhydrous milk fat (+1%). There were also increases in the prices of lactose (+6%) and butter milk powder (+0.2%).

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Offsetting these gains were declines in the price of cheddar (-3.7%) and rennet casein (-4.5%). Skimmed milk powder (SMP) prices also weakened slightly (-0.3%) to just over $2,200/t.

WMP price gains

Since August, sharp increases in the price of WMP primarily drove the recent upturn in the GDT index. WMP is the most important commodity traded on the GDT accounting for about half of product sold.

However, in recent weeks, the market for WMP has regressed, culminating in the 3% decline in the GDT index two weeks ago. This week, WMP prices lifted 2.9% to $2,760/t.

The reasons for this are twofold. Firstly, the north island in New Zealand is experiencing its heaviest level of rainfall in over a decade, leading to deteriorating grazing conditions and lower milk output. Secondly, Fonterra reduced the volume of WMP on offer at this week’s auction by 5% just days prior to the event, which tightened available supply.

With both contributing factors supply related, it begs the question right now of how resilient is demand.