a2MC eyes own processing plant, more Chinese labels
The a2 Milk Company (a2MC) says securing more China label registrations and developing its own nutritional manufacturing capability are high on its agenda.
Dairy prices on Global Dairy Trade (GDT) have tumbled in recent months as the Chinese Government again locked down cities as part of its zero-Covid policy.
However, the latest GDT event broke a run of three consecutive price falls: the price index rose 2.4%, while key whole milk powder (WMP) prices posted a 3.1% rise.
Overall and WMP prices remain down 18% and 19% respectively on the same time a year ago.
Westpac senior agri economist Nathan Penny says the positive result follows an easing in Covid restrictions in China.
He notes that Chinese dairy demand had been progressively weakening over the year on the back of the soft Chinese economy.
"However, the loosening of Covid restrictions recently may signal a more pragmatic approach to Covid being adopted by Chinese officials."
When the Chinese economy is booming, NZ dairy farmers tend to benefit.
Penny expects the Chinese economy to grow by 6% over 2023 from a soft 3.5% over 2022.
He says this pickup in the Chinese economy and looser Covid restrictions should translate into improved Chinese dairy demand over the year ahead.
But ASB economist Nathaniel Keall believes dairy prices won't fully recover until the Chinese economy picks up. "We don't expect prices to make a more sustained recovery until that Chinese demand comes back - and that doesn't look imminent."
Keall notes that alongside ultratight global supply, aggressive purchases by China helped fuel the massive gains in dairy prices seen over early 2021.
This largely kept them high over the first part of this year, so the subsequent absence of strong Chinese demand has been sorely missed.
"As we've highlighted over numerous publications, the lack of Chinese demand is being driven by a softer domestic picture: a strict anti-Covid regime and slowing economic growth more broadly have meant the outlook for household consumption in China has weakened considerably."
ASB recently revised its forecast milk price for the season from a $10/kgMS to $9.40/kgMS.
Westpac is forecasting $8.75/kgMS for this season and $10 for the following season.
