Global dairy prices rose on Tuesday night, despite the escalating US-China trade war and slowing economic growth.
The Global Dairy Trade price index was up 2 per cent, after two months of slight falls.
All but one commodity group posted increases, led by lactose, up 5pc, and skim milk powder, up 3.4pc.
The key whole milk powder index was up 1.9pc, butter was up 2.7pc and cheddar was up 0.4pc.
The only commodity to post a loss was rennet casein, down 0.1pc.
Analysts say the market is holding steady, with prices sitting at close to the three-year average.
They point to relative stability in the Chinese household sector, despite the trade tensions, as a key factor.
New Zealand bank ASB senior rural economist Nathan Penny said global dairy prices had remained relatively resilient in the wake of the increasingly shambolic geo-political backdrop and slowing global growth.
"China is the world's biggest dairy importer and home to the largest group of participants on the dairy auction platform," he said.
"Its growth has been slowing over 2019 and the purchasing power of its currency has also weakened recently as the US-China tariff tit-for-tat has snowballed.
"Nonetheless, the Chinese household sector and its food purchases are faring better than other parts of the economy.
"The relative strength of the Chinese household sector appears one key factor underpinning dairy prices."
Westpac's head of NZ strategy Imre Speizer said part of the explanation for the price rise was resilience in Chinese demand, which had remained firm despite its economic slowdown.
"At last night's auction North Asia (a reasonable proxy for China) again bought more than half of the total offering, with South East Asia/Oceania buying around a quarter," he said.
"We continue to expect a further loss in momentum in China's economy into year-end, which should constrain demand somewhat.
"However, over the longer term, its pro-active responses to recent adversities, via monetary policy stimulus, export diversification, and efficiency gains, should pay dividends."
The other key factor for the market is NZ's spring production.
Mr Penny said global dairy supply remained tight, particularly in the northern hemisphere and Australia.
"NZ spring production will be key in determining the direction for global dairy prices," he said.
"At this stage, we expect flat production for the 2019/20 season.
"Notably, winter has been relatively kind to farmers.
"On the other hand, production last spring was very strong, so a kind winter may still not be enough for production to match last year's levels."
Mr Speizer said NZ milk production this spring should be decent given soil moisture levels and warmer temperatures.
But against that global production remained subdued, he said.
Both analysts are forecasting a wide range of potential NZ farmgate prices for this season.
Mr Penny said a wide forecast range was appropriate for now as it was still early in the NZ production season and global risks remained high.
ASB has reaffirmed its forecast price at $NZ7 a kilogram milk solids.
Mr Speizer said it was retaining its forecast price at $NZ6.50/kg MS.
"That leaves us toward the lower end of Fonterra's own milk price forecast for this season of $NZ6.25-$NZ7.25," he said.
Fonterra has delayed its announcement about the milk payout from to September 26 and will also announce its annual financial results and a new business strategy.
"We expect to see a finalised 2018/19 milk price and a refreshed range for 2019/20," Mr Speizer said.
Meanwhile, Australian analyst Freshagenda's Australian dairy export index edged lower this week as the result of a stronger Australian dollar, with prices stable to slightly higher.
In spot quotes from Australian exporters, skim milk powder prices increased, but cheddar, butter and whole milk powder prices were unchanged, Freshagenda reported.
"The Australian dollar gained ground against the US currency, ending the week at $US0.6872," it said.
"This reflected comments from President Trump that he is delaying scheduled tariff hikes on Chinese products by two weeks, which in turn followed news that China exempted a basket of US products from its own tariffs.
"The combined impact of these factors pruned 0.6 points from the index which now stands at 213.1, an eight-week low."
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