Wednesday, 16 November 2022 08:55

Less demand for milk keeping prices down

Written by  Sudesh Kissun
China’s economic growth is slowing and demand for milk is also on the wane. China’s economic growth is slowing and demand for milk is also on the wane.

Weaker demand for dairy, particularly in the key Chinese market, is being blamed for the continued slide in the forecast milk price.

Dairy analysts and forecasters are shifting their focus from weak global milk supply to the impact on global demand from Covid and economic uncertainty.

ASB economist Nathaniel Keall points out that milk prices have always been a combination of dairy supply and consumer demand.

"But often supply has been the thing that swings around the most, particularly over the last couple of years, so it's often the thing forecasters have highlighted," he told Dairy News.

"But when global growth really slows - in the way that it is at the moment - you expect that to have an impact."

He notes that China has gone from over 8.5% growth last year to around 3.2% this year.

All that missing demand comes from chunks of the population being in lockdown.

"That stuff has an impact," Keall says.

Over the past three Global Dairy Trade (GDT) auctions, overall prices have slid by 11.5%: over the past year, prices have slipped by over 18%.

Whole milk powder prices have slid from a high of US$4,757/metric tonne in March this year to $3,279/MT at the last auction.

Keall says from a GDT perspective, it all depends on what China does and that is still really opaque.

“A lot of analysts thought it would back away from the zero-Covid policy and we’d get food service demand coming back, but if anything, the government has doubled down.

“At the very least it looks like there will be a little bit more near-term weakness.”

A weaker global economy also translates into weaker commodity prices.

Keall says less economic activity tends to mean weaker consumption, which means less demand for commodities and ultimately, less upward pressure on commodity prices.

“So all else being equal, a weaker global economy probably means a somewhat weaker milk price than would otherwise be the case.

“But we also think supply is likely to remain pretty constrained though, which will provide some support for prices.”

ASB last month reduced its 2022-23 forecast milk price by 60c to $9.40/kgMS.

Westpac has gone further, shaving 50c off its forecast price and settling at $8.75/kgMS.

Westpac senior agri economist Nathan Penny says global dairy prices have been under pressure for some time.

These recent falls are both larger and have continued for longer than the market anticipated, he notes. Penny agrees that the weakness in demand largely traces back to conditions in China.

More like this

Too little, too late

OPINION: Economists, in their usual excitable tones, have, for a while now, been openly questioning the Reserve Bank’s glacially slow reaction to the recessionary economic conditions we’re all drowning in.

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