Westpac senior agri-economist Nathan Penny says that uncertainties arising from surging covid numbers in China are likely to have weighed on dairy prices.
Buyers of dairy commodities on the Global Dairy Trade (GDT) platform have paused for breath after months of strong price rises, to consider the war in Ukraine and rapidly spreading stealth covid in China.
The GDT price index of all products and all contract periods registered its second small fall in eight months, since the beginning of August, during which the index has risen 35%.
It went down by less than 1% and whole milk powder (WMP) prices fell 2.1%.
Westpac senior agri-economist Nathan Penny said that uncertainties arising from surging covid numbers in China are likely to have weighed on dairy prices.
“The fact that WMP and butter posted the largest price falls points to conditions in China as being the key development for dairy markets,” Penny said.
“New Zealand is the largest exporter of WMP and butter to China, so any factors affecting demand there will soon be reflected in these prices on the auction platform.”
Before the auction the futures market had predicted a 5% increase for WMP, instead it fell by 2%.
But WMP prices are still 20% higher than at the start of the year.
Despite the latest fall, the GDT price index at 1579 remains at a record level, higher than April 2013 during the short-lived commodities boom.
Skim milk powder (SMP) bucked the latest downward trend, adding 1.6% and registering US$4545/tonne, and is now an extraordinary $50 lower than WMP rather than the usual $500.
Anhydrous milk fat (AMF) also rose in price and remains above $7000/t. Both AMF and SMP are at record levels.
“Price rises for these products suggests that the Ukraine-Russia conflict and its impact on grain feed prices is continuing to put the squeeze on European dairy production,” he said.
ASB dairy analyst Nat Keall said the dairy market fundamentals still support prices holding their ground or even advancing further in the short-term.
“There is not much sign that supply conditions will ease with any alacrity,” Keall said.
“Stretched capacity and rising cost pressures remain constraints on output globally, while much of the southern hemisphere has unfavourable weather conditions, like the recent flooding in Australia.
“According to NZX, in some parts of the Waikato milk output is still running about 12% behind year-ago levels.”
Southland farmers are dealing with an unusual dry period, with pasture growth rates and pasture covers well below historical averages, which is starting to lead to concerns about feed levels for winter.
The latest Rabobank Global Dairy Quarterly Report said milk production in the first half of 2022 in the seven main producing regions would fall by 0.7% compared with IH 2021.
It says inflationary pressure is running rampant around the world, with an increasingly worsening outlook, begging the question “how high, for how long?” when it comes to dairy prices.
But the bank expects dairy commodity prices will stay elevated through to the middle of the year amid the constrained supply.
