Tuesday, 26 November 2024 08:55

Chinese demand returns, sending prices soaring

Written by  Sudesh Kissun
After being notably absent earlier this year, Chinese buyers are back on the global dairy market. After being notably absent earlier this year, Chinese buyers are back on the global dairy market.

Chinese buyers are returning in force to replenish stocks and helping send global dairy prices higher.

China significantly reduced its imports of dairy products over the past two years compared to previous years, due to softening demand at home and a surge in their own production.

However, Westpac senior economist Michael Gordon says it's becoming more apparent now that the pullback in their imports has left them significantly understocked, especially for milk powders.

Gordon notes that China's dairy industry is still struggling with an oversupply of liquid milk, some of which is being dried into powders in order to be able to store it - but it appears they don't have the capacity to make up for the extent of the shortfall in imports.

"For whole milk powder (WMP) in particular, China has few options for increasing its supply. New Zealand is by far the dominant supplier on the global market, and Fonterra has tilted its product mix away from WMP in the last couple of seasons, in response to the fall in Chinese demand.

"So, the only real way to secure more WMP is to divert it away from other markets. Consequently, we're seeing buyers from North Asia (largely China) take up an increasing share of the product sold at the Global Dairy Trade auction."

The last GDT saw the price index jump 1.9% to US$4089/metric tonne, its highest point since July 2022. WMP prices rose 3.25% to US$3826/MT.


Read More


Westpac has revised its forecast milk price for the season to $10/kgMS. If achieved, it would be the highest milk price on record and the first double-digit one. However, he cautions that's not quite the case once we account fro the general rate of inflation.

"It's certainly above average, but there have been four previous years where the milk price was higher in inflation-adjusted terms. It should also be noted that none of those previous highs were sustained, and in some cases were followed by sharply lower prices in the following season."

Adjusting for general inflation also understates the degree to which on-farm costs have risen in recent years.

DairyNZ currently estimates a breakeven price of $8.15/kgMS for a typical dairy farm, up from $8.01/kgMS last season.

"That said, a $10 milk price would leave substantial room for farmers to spend and invest more, even after catching up on maintenance and other costs that might have been deferred during the previous tougher season," says Gordon.

"A $10/kg milk price, along with an increase in milk volumes that is shaping up to be in the order of 2%, would mean around $3.5 billion of additional revenue for Fonterra's suppliers compared to last season (and $4.5b in total if this experience is repeated across the other dairy companies).

"After allowing for an increase in costs, this suggests about $4b of extra discretionary income for dairy farmers this year, equal to around 1% of GDP."

Another factor pushing dairy prices up is production constraints, especially in Europe and the US - two of the world's biggest milk producers.

More like this

House in order?

OPINION: Your old mate reckons a wake-up call is overdue for the platoons of non-productive (and now unemployed) bureaucrats, researchers and various other bludgers whingeing about the current government putting out the bonfire of taxpayer money that burned so brightly in recent years.

Featured

Helping protect sheep from parasites

Everyone from experienced veterinarians and young professionals to the Wormwise programme and outstanding clinics have been recognised in this year’s New Zealand Veterinary Association (NZVA) awards. As part of a series looking at this year’s rural winners, Leo Argent talked with Ginny Dodunski, winner of the Veterinary Impact Award for raising the profile of the Wormwise programme.

Top Māori sheep and beef farms showcase excellence in Ahuwhenua Trophy field days

Recently two of New Zealand's top Maori sheep and beef farms held field days as part of the prestigious Ahuwhenua Trophy competition. The two are: Whangaroa Ngaiotonga Trust, northeast of Whangarei, and the proprietors of Tawapata Onenui farm on Mahia Peninsula in southern Hawke's Bay. Reporter Peter Burke attended both field days.

Gongs for best field days site

Among the regular exhibitors at last month’s South Island Agricultural Field Days, the one that arguably takes the most intensive preparation every time is the PGG Wrightson Seeds site.

National

Lame stories from a country vet

Everyone from experienced veterinarians and young professionals to the Wormwise programme and outstanding clinics have been recognised in this year’s…

Machinery & Products

Amazone extends hoe range

With many European manufacturers releasing mechanical weeding systems to counter the backlash around the use and possible banning of agrochemicals,…

Gong for NH dealers

New Holland dealers from around Australia and New Zealand came together last month for the Dealer of the Year Awards,…

A true Kiwi ingenuity

The King Cobra raingun continues to have a huge following in the New Zealand market and is also exported to…

» Latest Print Issues Online

Milking It

Greenpeace a charity?

OPINION: Should Greenpeace be stripped of their charitable status? Farmers say yes.

Synlait's back

OPINION: After years of financial turmoil, Canterbury milk processor Synlait is now back in business.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter