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

Better animal genetic gain system

A governance group has been formed, following extensive sector consultation, to implement the recommendations from the Industry Working Group's (IWG) final report and is said to be forming a 'road map' for improving New Zealand's animal genetic gain system.

SIDE 2025's new schedule, venue

Annual farmer gathering, the South Island Dairy Event (SIDE), is set to make history as it heads to Timaru for the first time.

Taranaki piggery goes solar

Installing 400 solar panels at their Taranaki piggery and cropping operation will have significant environmental, financial and animal welfare benefits for the Stanley family.

Editorial: Keep FTAs coming

OPINION: The dairy industry will  be a major beneficiary of a new free trade deal between NZ and the Gulf Co-operation Council (GCC).

National

Organic sector backtracks on GE

Organics Aotearoa New Zealand (OANZ) says the Government’s new gene editing and genetic modification reforms could leave New Zealand as…

$3b windfall?

Fonterra's proposed sale of its global consumer business could fetch over $3 billion but not all proceeds will end up…

Machinery & Products

Milk Sustainability Centre launched

The recently announced Milk Sustainability Centre – a collaboration between global giant John Deere and milking and feed specialists De…

Data connection made easier

New Holland and Case IH are introducing new advancements in their precision technology stack to make farming easier and more…

» 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