Tuesday, 09 June 2020 09:44

Global dairy prices settling down

Written by  Sudesh Kissun
Demand for dairy in China is increasing. Demand for dairy in China is increasing.

Global dairy prices are settling down after a rollercoaster ride triggered by the COVID-19 pandemic.

Last week’s Global Dairy Trade (GDT) auction saw the price index rise 0.1%, a slightly better outcome than expected by markets. This followed a 1% rise in the previous auction. Whole milk powder price rose 2.1% with increased demand from China.

At last week’s auction, whole milk powder fetched US$2,761/MT – still 5% below the year’s peak in January and 9% below the average of the past three years ($3,040).

While analysts believe these are early days, the positive GDT result signals that the worst may be over for some key markets. 

However, Northern Hemisphere production and a high NZ dollar could affect the milk payout for NZ farmers.

Westpac’s senior market strategist Imre Speizer says it’s hard to infer too much from just one auction.

He says the result is consistent with the rebound in economic activity seen in many countries since the contraction in April. 

“Activity levels remain extremely weak, but possibly past the worst,” he says.

Westpac is forecasting a 2020-21 farmgate milk price of $6.30/kgMS.

Speizer notes that the futures market is broadly in agreement, pricing it at $6.20/kgMS currently, slightly more upbeat than the $6.13 two weeks ago and $5.93/kgMS at the end of April. 

Last month Fonterra announced an opening forecast range of $5.40-$6.90/kgMS.

ASB is more optimistic and has an opening forecast of $6.50/kgMS. Senior economist Chris Tennent-Brown notes that this is towards the top end of Fonterra’s range. 

While any lift in whole milk powder prices is encouraging, over recent weeks the stronger NZ dollar is an offsetting negative, he says.

It was noteworthy that North Asian share (a proxy for China demand) rebounded at last week’s auction to a level slightly above average for the past 12 months. 

RaboResearch dairy analyst Tom Bailey notes that conditions in China generally continue to improve economically, which typically leads to increased demand for dairy. 

However, Rabobank estimates that significant domestic stockpiles of milk powder remain in China due to spray drying in February, resulting from supply chain constraints in processing fresh dairy products at the time. 

Bailey says these stocks will likely pose a demand risk for imported powders later in the year. 

 He also noted that demand for whole milk powder was up as markets reopen and supply chains are refilled. 

However, while distributors might be refilling their pipelines, true consumer-level demand remains opaque around the globe. 

More like this

Country’s backbone performs

New Zealand's primary sector has added steel to the country’s economy in the wake of the Covid-19 pandemic, according to a recently released report.

China keeps dairy prices high

Whole milk powder (WMP) prices are now sitting above pre-Covid-19 levels and New Zealand farmers can thank a resurging Chinese economy for that.


Water reforms come at a cost

The government’s new freshwater laws, signed off this week, have the potential to create significant unnecessary costs for ratepayers, farmers and entire communities, Federated Farmers says.

2020 harvest yields up

Final harvest data for wheat, barley and oats (milling/malting and feed) in 2020 show yields were up 17% overall across the six crops.


Difficult but the right call

DairyNZ chief executive Dr Tim Mackle says the joint decision three years ago to eradicate Mycoplamsa bovis was a difficult call.

Milking cluster milks runner-up award

DeLaval has come away with the runner up prize in this year’s Fieldays Online innovation competition with a new milking cluster that eliminates the need for conventional liner changes.

Glow worms to cows

Thomas Lundman's work focus has gone from tracking tiny critters in pitch black caves to looking after considerably larger animals in paddocks near Whakatane.

» Latest Print Issues Online

Milking It

A ticking timebomb?

There could be another dairy health scare brewing in China and this one starts in our backyard.

Please explain

Does anyone in the Government understand the essential role St John Ambulance has in our society?

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter