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.
Last week’s Global Dairy Trade (GDT) saw the sixth consecutive drop in the price index. But it’s the fourth consecutive drop in whole milk powder (WMP) price that will concern farmers.
ASB economist Nat Keall points out that WMP prices are holding onto most of their gains from earlier in the year and are still up about 20% on the same period last year
“We expect prices to drift lower over the remainder of the season, but the pace and size of the easing is a big question,” says Keall.
With global demand and supply still finely balance, he thinks a sharp price correction is unlikely.
Keall says while there are some downside risks to ASB’s forecast of $8.20/kgMS, prices remain very high.
“We still see the makings of a strong season despite the latest GDT result.
“Anecdotally, there are signs too that Fonterra is selling product off auction at healthy prices.”
A weaker than expected New Zealand dollar may add some support to the farmgate milk price, says Keall.
The consecutive drop in dairy prices suggests prices are losing momentum.
Aggressive Chinese purchases fuelled the boom in dairy prices this year, as the country build ups its strategic stockpile in response to booming domestic consumption.
Keall says tighter global supply and widespread freight disruption have added fuel to the fire.
“But there are now signs Chinese inventory is getting closer to healthy levels, and global production (both in NZ and in the Northern Hemisphere) has lifted in response to the price signals,” he says.
