United States-based dairy analyst for Rabobank Thomas Bailey said market sentiment may be “wait and see” as the New Zealand dairy season gets underway and Fonterra’s GDT offer volumes build up.
Whole milk powder, which NZ produces in abundance as the world’s largest exporter, suffered the worst in the latest auction, down 7.5% to sit just about USA$3000/tonne on average.
Skim powder also dropped 4.6% to levels below $2500/t.
China’s share of purchasing dropped to 56% from 62% at the previous GDT event.
“Consumer demand in China is not as strong as recent indicators such as trade and price reflect,” Bailey said.
“The apparent demand which was thought to be consumer led appears to be due to a shift in business planning, resulting in companies carrying more inventory than normal, to ensure food security.
“This leads us to maintain that at some point there will be a softening in Chinese demand from imports as domestic production and inventories remain high with soft end-user demand.”
Rabobank was not forecasting a lower NZ farm gate milk price as a result but warning that the road ahead would be bumpy.
Westpac senior agri-economist Nathan Penny said concerns about a resurgence of covid-19 had spooked the dairy market.
Despite their fall, prices remained consistent with Westpac’s prediction of $6.50/kg milk price.
Auction volumes have begun to rise in anticipation of the spring milk production.
The latest GDT auction had one-third more product than the previous event and the WMP offering was up 48%.
ANZ economist Susan Kilsby, on the day before the latest GDT event, continued to be cautious about world dairy markets and the strength of the NZ dollar but said the milk price should remain at a respectable $6.50.
“Milk prices were considerably more stable in the past few years than previously experienced.
“It will be quite a feat if this trend can be maintained for the next few seasons given the uncertainty that currently exists in global economies.”
The ANZ world commodity price index rose 2.3% in July with the strength in dairy driving the index back to its pre-covid levels.
