Pundits are tipping a record farmgate milk price in New Zealand this season, on the back of production declines in key export regions.
The Global Dairy Trade auction continued its bullish run on Tuesday night, posting a 1.9 per cent increase.
The result prompted one bank analyst to suggest a farmgate milk price around the $NZ9 per kilogram milk solids mark was a real prospect.
Another bank upgraded its 2021/22 farmgate milk price forecast by NZ40 cents to $NZ8.90/kg MS.
Tuesday night's auction saw gains across all commodity groups led by butter, which was up 3.5pc.
Cheddar was up 2.2pc, the key whole milk powder price 1.9pc and skim milk powder 1.4pc.
The strong global market has also seen an Australian market analyst lift its estimate of how much Australian export milk is worth.
Warning on next season's farmgate milk prices
But banks have also warned the heady prices won't last.
Westpac senior agri economist Nathan Penny said although the bank was now forecasting a record high price of $NZ8.90/kg MS for 2021/22, it had set its opening 2022/23 milk price forecast at $NZ6.90/kg MS.
This was a $NZ2/kg cut and lower than the $NZ7.50/kg average price it was expecting in the next five years.
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Production falls in NZ and Europe were the key catalyst for the high current season forecast.
NZ production this season was now expected to fall 1.5pc on last season.
"This season, New Zealand production has been on the back foot," Mr Penny said.
"Winter and spring have been either wet or cold or both in many parts of the country.
"As a result, production for the first four months of the season is running at 3.1pc behind the same stage of last season.
"We expect this production softness to continue in the short term.
"With the first five months of the year accounting for around a third of the season's production, it will be very difficult for production to be made up later, particularly relative to last season's record level of production."
Mr Penny said weather had also impacted European production, while China's domestic production and US production were constrained by high feed costs and limited feed availability.
But global dairy supply would not be weak across all key regions indefinitely.
"And as supply recovers, global dairy prices will fall," he said.
The bank expects NZ production to rebound 1.5pc in 2022/23.
Farmgate price of $9 a possibility
ASB economist Nathaniel Keall said a $NZ9/kg MS farmgate milk price was a real possibility.
"Supply is tight and buyers are prepared to pay a premium to secure product right across the board," he said.
The global demand and supply balance was tight enough to keep prices at these levels.
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Mr Keall said future contract prices indicated prices were likely to climb even higher.
Unlike the previous dairy price cycle seven years ago, the rise was across all products, not just whole milk powder.
"All products are running 25-60pc ahead of long-run averages, with the biggest gains for fats and cheeses," he said.
Australian commodity milk value higher
Australian analyst Freshagenda's spot commodity milk value also increased this week.
This was the result of stronger milk powder commodity prices and a weaker Australian dollar.
"The combined impact of these changes lifted the commodity milk value for southern Australian dairy manufacturers by 14 cents to $7.88/kg MS," Freshagenda said.
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