Tuesday, 25 October 2022 09:55

China's economic woes hit milk price

Written by  Sudesh Kissun
Last week’s Global Dairy Trade saw sizeable drops in prices across all products available on the auction platform. Last week’s Global Dairy Trade saw sizeable drops in prices across all products available on the auction platform.

China's weak economic activity is weighing in on global dairy prices.

Last week’s Global Dairy Trade (GDT) saw sizeable drops in prices across all products available on the auction platform.

Overall prices slid 4.6%, while key whole milk powder (WMP) prices posted a similar 4.4% fall.

Westpac senior economist Nathan Penny notes that the price slide was the second successive auction price fall and means that prices over October have essentially given back all their gains over the two September auctions.

“The negative result comes against a backdrop of economic weakness in New Zealand’s key market, China,” he says.

“China continues to persevere with its Covid Zero policy, meaning restrictions on movement which are in turn weighing on economic activity.

“This policy was reaffirmed at the recent Communist Party Congress. Dairy markets may have been hoping for some relief on this front, and in the absence of any, have priced further weakness in global dairy prices.”

On the other hand, global dairy supply remains very weak.

For example, in August New Zealand dairy production was down 4.9% versus August 2021. And anecdotally, production has continued on this weak note over September and into October.

Fonterra this month announced a revised forecast for its 2022-23 New Zealand milk collections to 1,480 million kgMS, a drop of 15 million kgMS.

Fonterra chief executive Miles Hurrell says this was due to weather conditions in parts of New Zealand causing a slow start to the season.

The variable weather conditions which caused a slow start on farm have continued, contributing to lower collections through September, Hurrell says.

Penny says while tight dairy supply should support dairy prices over the coming months, the weak GDT results over October combined with the weak Chinese dairy demand outlook mean that there are now downside risks to their 2022/23 milk price forecast of $9.25/kgMS.

Fonterra is forecasting a milk price range of $8.50 to $10/kgMS with a mid-point of $9.25/kgMS.

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