Dairy commodity prices continue to rise as milk supplies from the two major dairy exporting regions, New Zealand and the EU, tighten further. The UK and France in particular have seen some significant declines in milk production in recent months, which is certainly influencing the thinking on the buyer side of the market.

Estimated figures released by the UK’s Agriculture and Horticulture Development Board show UK milk collections for November were just over 1.1m tonnes, a near 8% decline compared to the same month last year. In France, the latest weekly milk supply figures released by the country’s agriculture ministry show milk production is running well behind this time last year. In the last two weeks, milk collections are down in the region of 8% compared to the same weeks in 2015. For the year to date, French milk collections are at 15.4m tonnes, which is 3.5% behind where they were last year.

The milk supply situation in New Zealand is also tightened significantly during what are the months of peak milk production in the country. Figures released last week show October milk collections in New Zealand are back 5.5% compared with the same month last year to just over 3m tonnes.

This is the lowest level of October milk collections in New Zealand since 2012. October is the month of peak milk production in New Zealand and the decline in supply reflects the unseasonably wet weather the country experienced this spring.

The tightening milk supply in New Zealand has undoubtedly boosted global dairy commodity prices in the last number of months. The GDT dairy index is now at two-year highs as buyers look to secure tightening supplies.

In the last week, the New Zealand futures market for whole milk powder (WMP) has also posted fresh gains. January, February and March contracts for WMP have lifted 1.9% since last week’s GDT auction, where WMP prices increased almost 5% to just below $3,600/t.

The recent lift in global oil markets should also be seen as a positive for milk powder prices as oil economies are major importers of both skim and whole milk powders.

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