Dairy product prices on the Global Dairy Trade (GDT) auction rebounded sharply at this week’s event, with the overall index up 9.4%, driven by a 19% jump in whole milk powder (WMP).

The rise had been expected after last week’s announcement from Fonterra that New Zealand milk output in 2014/2015 season would be down 3%. The company has also lowered the volumes being offered on the auction.

It was the fourth consecutive auction price rise. The timing of the price recovery will be welcomed here, as it may allow Irish farmers to escape the worst of the market dip. The overall index is now 16% higher than its low point last November. However, it remains 41% below last February’s peak and would only deliver an Irish equivalent price in the low 20s on a cent-per-litre basis.

European prices are also improving, with the weaker euro a significant boost. Yesterday’s weekly quotes from the Dutch Dairy Board showed butter up by 3% to €3,070 per tonne and whole milk powder jumped by 6% to €2,480/t. Skim milk powder hit €2,000/t after a 7% increase.

Dutch processor Friesland Campina yesterday increased their guaranteed milk price for February to €31.5 per 100kg of milk (30.6c/litre at 4.41% fat and 3.47% protein). This represents a €1.25 increase from January’s €30.25/100kg.

Joe Collins of the Irish Dairy Board noted that “the three Ds” – dollar, drought and demand – have all moved sentiment in a positive direction.

“The weak euro allows us to be more competitive in existing markets and access new markets that drought in the southern hemisphere creates,” he said. While the reported droughts are coming late in the Oceanic season (75% complete), it is a very emotive topic and has driven sentiment.

“We also notice that non-Chinese Asian demand has been stimulated by low prices in recent months,” he added.

Buyers that had been sitting back prior to Christmas awaiting further price falls are now in the market covering short positions, he said. EU milk deliveries are and will be constrained in many countries as farmers curb supply in an effort to reduce super levies before end March.

However, Joe Collins cautioned that markets will be tested by higher milk volumes expected in Europe after 1 April. USA milk flows are also likely to remain in growth – although the strong dollar will curb USA exports and domestic US demand will absorb increased volumes.

IFA National Dairy committee chairman Sean O’Leary said that the gloomiest predictions for 2015 may yet prove somewhat wide of the mark.

“Irish milk prices have already fallen nearly 8c/l or 21% from last May’s peak, leaving little margin, if any, for most dairy farmers, and the prospects of farm prices improving are most likely for the second half of the year,” he said.