Tuesday, 13 December 2022 10:55

China's Covid policy keeps dairy prices subdued

Written by  Staff Reporters
ASB economist Nat Keall says the absence of Chinese demand remains the “the Panda in the room as each GDT goes by”. ASB economist Nat Keall says the absence of Chinese demand remains the “the Panda in the room as each GDT goes by”.

The absence of Chinese demand for dairy continues to impact global prices.

Last week's Global Dairy Trade (GDT) auction saw prices remain flat.

Overall and whole milk powder prices remain down 19% and 20% respectively on the same time a year ago.

ASB economist Nat Keall believes prices have reached something of a floor for now after two positive auctions.

The absence of Chinese demand remains "the Panda in the room as each GDT goes by", he says.

Keall notes that the quantity of WMP purchased by 'North Asia' at each GDT remains far below the levels of twelve months ago and even further below the levels reached in early 2021 when aggressive Chinese demand sent prices skyrocketing.

"As we noted a fortnight ago, the drop isn't a function of changes in offer volumes on the GDT platform - the quantity of WMP bought by China has generally dropped more dramatically than any changes in the overall quantity sold.

"In concert with tight global supply, aggressive purchases by China helped fuel the massive gains in dairy prices we saw over early 2021, and then largely kept prices high over the first part of this year.

"The subsequent absence of strong Chinese demand has been sorely missed - our chart to the above right shows how the softening in the WMP price indices has tracked China's shrinking proportion of purchases."

China's Covid policy is the big swing factor in dairy prices.

Keall says the combination of decent Chinese dairy outputand wide-scale disruption to the food service industry from Covid restrictions, means the country can meet much more of its dairy consumption needs through local production.

But he notes that dairy prices do retain important supports in the form of prevailing tight global supply.

"We'd be quite bearish on the outlook if it weren't for the fact that production remains weak in most key regions.

"European production is managing some tentative year-on-year lifts, but that follows poor output all through the peak of the season.

"Here in NZ, we expect high input costs, difficulty securing workers and challenges around the compliance burden to keep output relatively constrained."

ASB is retaining its $9.40/kgMS farmgate milk price forecast for this season.

More like this

Editorial: NZ's great China move

OPINION: The New Zealand red meat sector, with support from the Government, has upped the ante to retain and expand its niche in the valuable Chinese market - and the signs are looking positive.

Positive vibes from China

Silver Fern Farms chief executive Dan Boulton says his recent visit to China has left him feeling optimistic about the situation there for the meat industry.

Chinese strategy

OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.

Featured

Massey Research Field Day attracts huge interest

More than 200 people turned out on Thursday, November 21 to see what progress has been made on one of NZ's biggest and most comprehensive agriculture research programmes on regenerative agriculture.

Expo set to wow again

Stellar speakers, top-notch trade sites, innovation, technology and connections are all on offer at the 2025 East Coast Farming Expo being once again hosted in Wairoa in February.

A year of global challenges

As a guest of the Italian Trade Association, Rural News Group Machinery Editor Mark Daniel took the opportunity to make an early November dash to Bologna to the 46th EIMA exhibition.

National

OSPRI's costly software upgrade

Animal disease management agency OSPRI has announced sweeping governance changes as it seeks to recover from the expensive failure of…

Machinery & Products

BA Pumps expand

Cambridge based BA Pumps & Sprayers, specialists in New Zealand-made spraying equipment, has acquired Tokoroa Engineering’s product range, including the…

Entries open for innovation award

Fieldays and its renowned Innovation Awards are celebrating their 57th year, marking a longstanding tradition in the agricultural calendar, with…

» Latest Print Issues Online

Milking It

Chinese strategy

OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.

Not fair

OPINION: The Listener's latest piece on winter grazing among Southland dairy farmers leaves much to be desired.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter