Global Dairy Trade (GDT) prices registered a surprise 2.4% increase in the second fortnightly November auction after three consecutive sizeable falls since the beginning of October.
Both whole milk powder and skim milk powder prices rose by 3.1% in the GDT auction, and anhydrous milk fat was up 2.7%.
Dairy market analysts differed on what they thought was the underlying cause of the market lift – in particular, whether Chinese demand was rebuilding after the easing of covid-19 restrictions.
NZX dairy insights manager Stu Davison said it is possible the lift was a technical bounce before prices keep easing.
Chinese importers bought only half of the whole milk powder volumes they bought at this time in 2021.
“We expect this weak trend to continue during China’s zero-covid policy timeframe,” he said.
But by contrast, Chinese buyers stood out in skim milk powder trading.
“This auction was a positive result, and it will most likely buoy the market for a session or two.
“However, there is also the real possibility that buyers saw this auction as an opportunity to secure product at a bargain price, potentially allowing them to step away again for a few auctions.”
Westpac senior agri economist Nathan Penny said some easing of the covid restrictions in China may be a pragmatic move that will contribute to demand for dairy products.
But the NZ dollar had risen in value to US61c after being as low as 55c during the past month.
Penny stuck with his farm gate milk price forecast of $8.75/kg for the current season and $10 for next season, as the Chinese recovery took hold.
ASB economist Nat Keall said the lift in the GDT index was a surprise considering that demand from China is still weak, with that market currently taking only half the volumes it did a year ago.
“We don’t expect prices to make a more sustained recovery until that Chinese demand comes back – and that doesn’t look imminent.
“Alongside ultra-tight global supply, aggressive purchases by China helped fuel the massive gains in dairy prices we saw over early 2021, and then largely kept them high over the first part of this year, so the subsequent absence of strong Chinese demand has been sorely missed.”
