Tuesday, 25 August 2020 07:55

Second COVID-19 waves hit dairy prices

Written by  Sudesh Kissun
Westpac senior agri economist Nathan Penny says the steep dairy price falls over August comes as several countries battle renewed outbreaks of COVID-19. Westpac senior agri economist Nathan Penny says the steep dairy price falls over August comes as several countries battle renewed outbreaks of COVID-19.

Second waves of COVID-19 around the world continue to weigh on dairy prices, according to Westpac senior agri economist Nathan Penny.

He says the steep price fall over August comes as several countries battle renewed outbreaks of COVID-19 and as total global case numbers continue to increase rapidly. 

“Indeed, some dairy markets and trade hubs such as Hong Kong, Singapore and Vietnam that were successfully containing COVID-19 have seen cases spike over August,” says Penny.

“With this in mind, it appears that dairy markets are acting on this renewed risk and have pushed prices lower.”

He made these comments after last week’s Global Dairy Trade (GDT) auction recorded its third straight drop in dairy prices.

The key whole milk powder prices posted a 2.2% drop, while overall auction prices slipped 1.7%. Over the two auctions this month, WMP prices have slipped 9.5%, while overall prices have fallen nearly 7%. Prices are back below their pre-COVID-19 levels after having wiped those price losses over July.

Penny told Rural News that things have changed since the COVID-19 sweet spot over early July. 

“At that stage, by-and-large, key dairy markets such as China and South-East Asia were seeing low and relatively stable case numbers, with lockdown restrictions generally easing as a result.”

He expects outbreaks to wax and wane but says, generally, most key dairy markets (notably China) continue to manage COVID-19 well.

As countries get on top of virus flare-ups some of the August price falls may prove temporary. 

On the flipside, if the virus continues to surge in key markets, then prices are likely to fall further.

RaboResearch dairy analyst Thomas Bailey notes that the dairy market is in a period of high uncertainty. 

Bailey points out that US spot cheese prices have seen a 100% increase followed by a 40% decline since April.

“This level of extreme volatility may be behind us at this stage, but it is a reminder of the magnitude of volatility we have seen this year, and higher than normal market volatility is expected for months to come,” he says.

At last week’s auction demand from North Asia (primarily China) increased while other key buying regions stepped back their purchases considerably. 

Bailey thinks while the Chinese national strategy might be to maintain larger inventories of dairy powders for food security purposes. The same is unclear for other markets such as South East Asia where such financing may not be an option or a focus within national programs. 

NZ milk supply

All eyes will be on New Zealand milk production as the southern hemisphere production ramps up.

From a supply perspective and with spring around the corner, the normal lift in NZ dairy production will begin to weigh on prices. 

Westpac’s Nathan Penny says the other dynamic in play will be spring weather and growing conditions. 

“As this plays out, we will look to NZ production growth versus a year ago for additional direction to dairy prices.

“At this early stage and anecdotally, a mild winter has set up farmers well for a strong start to spring.”

Westpac is maintaining its $6.50/kgMS forecast payout for the season.

More like this

Alliance pays back wage subsidy

After being dogged by claims about its entitlement to the wage subsidy, the country’s largest meat processor will now fully pay it back.

Mixed outlook for primary sector

After five years of growth, New Zealand's primary exports are heading for a drop in 2021 - but with a bounce back predicted in 2022.


Merlo goes greener

Obviously not wishing to get left behind by some of its competitors, Italian manufacturer Merlo is planning to add to its green-liveried telehandler range- with another set of green credentials in the shape of an all-new, all-electric battery-powered Merlo e-Worker model.


Growing a family legacy

What started with planting some acacia trees 25 years ago has become a multi-generational passion for the Hunt family in Te Awamutu.

Moves to improve winter grazing requirements

DairyNZ says it supports recommendations to the Government from an advisory group looking to improve winter grazing rules for farmers and achieve better environmental outcomes.


Machinery & Products

Good growth year for Claas

While many sectors of the agricultural machinery were hit by the ravages of Covid-19, the effects of the pandemic did…

Green machine frugal on fuel

According to the industry respected independent DLG PowerMix test, John Deere appears to be the best choice of tractor for…

App takes pressure off

TRS Tyre & Wheel, owned by Trelleborg Wheel Systems, has introduced the TLC Plus App to the New Zealand market.

New MF 5S series arrives

Just before Christmas, Massey Ferguson quietly released details of the successor to its popular MF 5700S range in the shape…

» The RNG Weather Report

» Latest Print Issues Online

The Hound


Your old mate reckons the nomination of the New Zealand Dairy Industry Awards (NZDIA) management team as a finalists in…

Good riddance!

The Hound reckons 2021 is off to a rollicking start with news that professional whinger and anti-farming drone Martin Taylor…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter