Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
According to Westpac NZ chief economist, Kelly Eckhold, Chinese buyers pulled back a little and Southeast Asian buyers picked up the slack in the auction.
He notes that Chinese demand remains around the 10-year average and overall prices remain near their highest since June 2023 and modestly above long-term averages.
“Of interest in terms of the market environment is the recent Chinese National People’s Congress held this week,” he says.
“The Chinese authorities laid out their targets for the economy this year. They set their growth target at 5% - in line with the 2023 target - but somewhat lower than average growth in the last 20 years and likely weaker than potential growth.
“Interestingly, the Chinese authorities also set a target for inflation at 3% - somewhat higher than the zero to negative outcomes seen of late.”
Eckhold believes it will be challenging for the authorities to meet these targets without significant policy stimulus – which so far is modest.
“Hence, we suspect the operating environment for exporters to China will remain challenging. Downside risks remain even though these may be a little less prominent than feared around August 2023.”
At last night’s auction, the GDT price index dropped 2.3% and the key whole milk powder (WMP) prices fell 2.8%.
The auction was weaker than recent auctions but more in line with recent weaker futures market trends, particularly the outcome of the GDT Pulse auction held on 27 February, noted Eckhold.
Most products posted price falls although cheese prices continued recent volatility, rising another 4%.
