Friday, March 29, 2024

Virus chews dairy prices

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Coronavirus has taken a chunk out of world dairy prices but so far has not stopped Chinese buyers or threatened the New Zealand farmgate milk price.
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The Global Dairy Trade index dropped 4.7% at the most-recent auction, including a 6.2% fall for whole milk powder and 4.5% for anhydrous milk fat.

ASB senior rural economist Nathan Penny found signs in the auction details the impact of the virus on dairy markets will be short-lived.

Chinese buyers remained active at the same level as previous auctions and the prices of three of the nine products actually rose while the overall impact on the market was a comparatively mild downwards move.

The 4.7% fall didn’t make the top 30 of GDT auction price falls despite fears of something larger.

He maintained the bank’s forecast of a seasonal $7.50/kg milksolids price for the time being but warned another false step by auction prices will lead to a re-assessment.

Fonterra chief executive Miles Hurrell said the drop in GDT prices was not unexpected and he expects some volatility as buyers take a wait-and-see approach.

“It is difficult to gauge the real impact on demand from just one GDT event.

“If there is a sustained drop in eating out in China then that could have an impact on our sales.”

Fonterra will watch its food service sales and the GDT prices very closely.

NZX dairy analyst Amy Castleton said New Zealand is the largest supplier of world-traded WMP and AMF.

“Markets have been nervous that coronavirus and the associated practices to prevent the spread will stop China buying. 

“Given China is such a large destination for NZ product this could have a large impact on our economy. 

“But there does not appear to have been a large drop in Chinese demand at the February 4 GDT event.”

China bought a larger volume than it did at the equivalent event last year.

Westpac market strategist Imre Speizer said the results of the GDT auction posed some downside risk to his milk price prediction but $7.40 is still achievable if the disruptions caused by coronavirus proves to be short-lived.

NZX senior analyst Julia Jones said negative market sentiment was to be expected at a time like this.

Though the coronavirus will have a short-term impact NZ dairy companies will be able to strategically reposition if necessary.

On Friday Castleton said her milk price forecast has tumbled 16 cents to $7.18/kg MS.

“Prices for dairy commodity futures on the NZX dairy derivatives market have dropped significantly over the past week or so. 

“Fears over market demand due to the spread of coronavirus have those trading on the market nervous and pulling back their positions.”

That market sentiment was likely to have driven of the fall at the GDT event because so far there has been no evidence of a significant drop in demand.

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