Global dairy prices have started the year with a bang with strong results at the first two Global Dairy Trade auctions.
The GDT index lifted 4.8 per cent to $US3593 a tonne on Tuesday night, backing up a rise of 3.9pc on January 6.
The increase was led by a 17.2pc surge in the anhydrous milk fat, while skim milk powder was up 7.0pc, butter 4.6pc and whole milk powder 2.2pc.
The price is the highest since May 2018.
"It was another rip-snorter of a dairy auction overnight, as prices advanced yet again," New Zealand bank ASB economist Nat Keall said.
"All the indicators continue to suggest demand for dairy products is likely to hold up well, through to the end of the season."
- Dairy markets stable despite pandemic challenges
- Dairy farm profitability lifts
- Dairy fat prices plummet as COVID crisis hits demand
Westpac NZ senior agri economist Nathan Penny said the dairy market was starting 2021 with a hiss and a roar.
The bank has lifted its forecast NZ 2020/21 farmgate milk price by NZ50 cents a kilogram of milk solids to $NZ7.50.
It has also lifted its forecast NZ 2021/22 farmgate milk price by NZ25c to $NZ7.25.
"The forecast lifts are on the back of surging global dairy prices, particularly at the start of this year," Mr Penny said.
"Since early November, overall dairy prices have jumped 17.2pc, with over half of the lift occurring since the start of the year."
Both analysts pointed to Chinese economic recovery as the key to the market revival.
"Solid purchases from China have anchored price gains at recent auctions, and with the latest Chinese GDP (gross domestic product) figures showing a decent lift in GDP, there is little reason to think that story will change," Mr Keall said.
Mr Penny said China largely had COVID-19 under control and its economy had rebounded strongly.
"In fact, the Chinese economy actually grew over 2020, the only major economy to do so," he said.
Mr Penny is upbeat about the market's prospects for the rest of this season.
"The global dairy price lift is mirroring a broader lift in other commodity prices," he said.
Oil price were trading essentially back at their pre-COVID levels.
"On that measure too dairy markets have put COVID well and truly in the rear-view mirror," he said.
"Whole milk powder (WMP) prices are now at their highest level since December 2016.
"From here, we expect the price momentum has further to run.
"Global dairy supply takes time respond to price lifts.
"Ultimately though, when supply does respond, we expect prices to moderate.
"But that is a story largely for next season."
Both analysts dismissed the impact on the strengthening NZ dollar on this season's prices.
"Given Fonterra's hedging policies and the timeframes involved, the flight of the kiwi will have little influence on the final farmgate price for this season," Mr Keall said.
"The NZD's recent strength is likely to be more of an influence on next season's milk price, so farmers should prepare to take a bit more of a hit from the NZD strength in the 21/22 season."
Want to read more stories like this?
Sign up below to receive our e-newsletter delivered fresh to your email in-box twice a week.