This week’s GDT auction saw a surge in the benchmark dairy index, with average selling prices up 11.4%. The increase was primarily driven by whole milk powder (WMP), as prices spiked a massive 20% during Tuesday’s event to almost $3,320/t.

Skimmed milk powder (SMP) prices also saw strong gains, with average prices rising 6.5% to $2,330/t. However, this means the premium between WMP and SMP prices has widened significantly to almost $1,000/t.

As New Zealand is the world’s largest WMP exporter, recent noises on declining milk collections from the country’s largest dairy processor, Fonterra, have helped to push up milk powder prices on the global market.

Indeed, for this week’s GDT auction Fonterra reduced its WMP offering by more than 18% to 14,600t compared with the last auction. On top of this, Fonterra has reduced its forecast WMP supply for all GDT auctions over the coming year by a total of 10,200t.

The processor cited a sharp fall-off in milk supply due to the wetter than normal spring in New Zealand. In the important Waikato region, Fonterra says milk collections are back 14% in October.

The sharp increase in WMP prices at this week’s GDT auction is easier to quantify in this context. Dairy buyers will have looked at the emerging supply picture in New Zealand and moved to secure supplies in the expectation that prices will rise further in the weeks and months ahead.