Tuesday, 14 June 2022 13:55

'Expect dairy prices to rise'

Written by  Staff Reporters
Westpac senior agri economist Nathan Penny expects dairy prices to regain lost ground now China's lockdowns are easing. Westpac senior agri economist Nathan Penny expects dairy prices to regain lost ground now China's lockdowns are easing.

Dairy prices are expected to recover more lost ground, says Westpac senior agri economist Nathan Penny.

He made the comment as Global Dairy Trade (GDT) recorded its first rise in the price index after five consecutive declines.

Last week's GDT saw the price index rise 1.5%, while key whole milk powder (WMP) prices were down 0.3%.

But Penny says the headline price index hides a lot of detail, especially as not all products and contracts are offered at every auction.

Digging into the details and looking at the weighted average price for all products reveals a much stronger picture, with prices up 5.1% at this auction, he adds.

Moreover, that price strength was broad based. Five out of the six products that they monitor posted price gains. WMP prices (up 5.7%) posted the largest gain, but butter prices were a close second (up 5.5%). Only cheddar prices fell.

"This result was also stronger than expectations," he says.

"Immediately prior to the auction, the futures market had indicated a circa 4% rise in WMP prices, while back on Friday we had pencilled in a 2% price rise."

The auction price rise follows the easing of Covid restrictions in China, particularly in Shanghai, Penny notes.

"That coupled with the lower auction volumes on offer, compared to surge we saw in May, are the likely catalysts for the price strength.

"From here, we expect prices to recover more of the lost ground."

Penny says WMP prices still remain 12.6% lower than the recent peak in March. "We assume that Covid restrictions in China will ease further over coming weeks, taking dairy demand higher as a result. At the same time, we expect global dairy supply to remain very tight, further underpinning prices."

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