Dairy commodity prices have soared to record highs as global supplies have been hit by a perfect storm of dry weather in the southern hemisphere and unusually cold and wet weather closer to home.

Drought in New Zealand and Australia has hit milk production and sent powder prices rocketing. In Fonterra’s latest dairy auction, skimmed milk powder was sold at a record $5,142/tonne, up 27.8% on the previous auction on 19 March, while whole milk powder was up 7.7% to $5,100/tonne.

Prices have also been boosted by continued strong demand from emerging markets, particularly China. Meanwhile in the UK, concern is rising about tighter supplies and higher prices because of the cold and wet conditions.

“With spring hampered by continuing cold and wintery weather, worries are mounting that the 2013/14 milk year will not get off to the best of starts,” DairyCo said last week, citing an 8.2% drop in UK milk deliveries for the two weeks ending 23 March compared with the same period in 2012.

Commodity prices 6 April 2013: electricity and gas up

Average temperatures this winter stood at 3.3°C compared with 4.6°C during the winter of 2011/12, pushing electricity up by 32.5% year-on-year and 22.3% on last month, while gas is now 17.5% more expensive than this time last year, having risen 4.3% in the past month.

It’s not all bad news on fuel, however, as EU diesel prices have fallen by 3.7% month-on-month to £629.8/tonne - and are now down 5.3% on this time last year.

Cocoa powder prices have also remained on their downward trajectory, as the market continues to return to more normal levels after the peaks of mid-2011. At £1,974/tonne, UK powder prices are now nearly 31% down year-on-year, and down 5.3% on the previous four weeks.

Key dairy commodities have become more expensive in response. In addition to price rises on SMP and WMP, butter moved up by 4.5% to £2,875/tonne in the four weeks to 13 March [Mintec, see box, right], and has now hit £2,950/tonne.

DairyCo also reports a 3.8% increase on bulk cream between February and March. Bulk cream is now 25% up year-on-year, following last year’s exceptionally low prices.

UK cream prices were on the rise largely due to the poor quality of pasture, with current interest rates an additional factor,” catering supplier Reynolds said in a note to customers.

The early 2013 Easter had also contributed to unusually firm demand, it added. Reynolds also warned the stability in Cheddar prices over the past 18 months was likely to come to an end soon.

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