Last week, the New Zealand GDT auction returned to positive territory with the benchmark dairy index lifting 1.4% as Chinese buyers re-entered the market. At the previous GDT event, where the index declined 3%, there was a notable absence of Chinese buyers due to a holiday in the country. The return of Chinese interest to the GDT auction last week helped whole milk powder (WMP) prices rise almost 3% to an average selling price of $2,760/t.

As a result, WMP futures have reacted positively to last week’s lift in the GDT index. In the last week, November, December and January futures contracts for WMP have improved almost 2% and are up more than 7% in the last fortnight.

WMP is the most important commodity traded on the GDT accounting for about 50% of product sold and as such, the WMP futures market can act as a decent gauge for the performance of the twice monthly GDT auction.

On the other side of the world, US farmers continue to drive milk output. Total US milk production for September this year was recorded at just over 7.4bn litres. From January to September, US milk production totalled more than 70bn litres, which means output from US dairy farms is running at about 1.7% ahead of where it was for the same period last year.

The US dairy herd is slightly larger than last year at 9.34m head, up 15,000 head year-on-year. However, the big difference on US dairy farms in 2016 is that farmers are milking their cows harder than last year.

On average, US farmers are getting increased milk output per cow of between 1.4% and 2% this year, which suggests farmers are taking advantage of the weak grain markets to feed more supplementary feed to animals. The old saying among US farmers that in times of bad milk prices you should milk more cows certainly seems to be holding true.

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Dairy trends: GDT bounces back slightly after latest auction

Dairy markets much improved but threats remain