The rise in global dairy prices could be partially attributed to demand from China, says Westpac market strategist Imre Speizer.
He says China’s dominance as an export destination, particularly for whole milk powder, has been evident in official monthly trade data for some time.
Stats NZ figures for August confirm the trend of rising dairy export volumes since 2016, with China now importing about as much as it did at the previous peak in 2013.
Speizer says while the outlook for China’s economy is mixed, consumers are still buying dairy products.
“The outlook for China’s economy is mixed: over the remainder of 2019 we expect the pace of activity to slow further, but over the long term its various stimulatory initiatives should prove supportive.
“Against this backdrop, consumer activity has held up well, China so far successfully engineering a rebalancing of the economy towards domestic consumption.”
Last week’s Global Dairy Trade (GDT) auction also reflected increase demand from China.
The GDT auction resulted in little change to prices overall: the price index rose 0.2%. The key export product, whole milk powder, fell 0.2%.
But Speizer notes that the multi-month trend in whole milk powder prices remains positive, with a total gain of 5.8% since bottoming in July.
Prices overall have been fairly stable since June, the headline index now sitting at the three-year average. Whole milk powder at $3141 is slightly above the three-year average of $3060.
Westpac is maintaining its payout forecast at $6.50/kgMS. Fonterra’s payout price range remains unchanged at $6.25-$7.25/kgMS.
Futures markets for the milk payout are now pricing $6.85, up from $6.75 last month ago but about the middle of the $6.65-$6.95 range prevailing since June.