Tuesday, 28 July 2020 10:55

China keeps dairy prices high

Written by  Sudesh Kissun
Westpac agricultural economist Nathan Penny. Westpac agricultural economist Nathan Penny.

Whole milk powder (WMP) prices are now sitting above pre-Covid-19 levels and New Zealand farmers can thank a resurging Chinese economy for that.

Last week’s Global Dairy Trade (GDT) auction consolidated big gains from the previous auction. WMP price rose 0.6% to US$3,218/metric tonne on the back of a whopping 14% rise in the previous auction.

Westpac senior agri economist Nathan Penny says WMP prices are now 1.8% ahead of where they sat at the end of January.

“In other words, prices have comfortably wiped out the earlier Covid-related price falls,” Penny says.

Penny says unlike other countries dealing with Covid-19, China’s economy has bounced back.

“China’s economy is back above where it was pre-Covid,” he told Rural News.

“Compare that with NZ….our economy will take years to get back to 2019 level.”

Penny says while there is a little bit of hangover from NZ’s drought last season, it’s mostly the resurgent Chinese economy that is driving dairy prices.

“There is also a strong demand from the rest of Asia but China is the key one.”

RaboResearch dairy analyst Thomas Bailey agrees that dairy price stability was been driven by strong North Asian (primarily Chinese) demand. 

China’s economy is recovering quickly, evidenced by the year on year second quarter GDP growth of 3.2%.

However, Bailey notes there is still some concern regarding China’s domestic milk powder inventories. Local milk supply in China lifted 10% in the second quarter of 2020 over last year.

Bailey says given this exceptionally strong domestic milk supply growth, it appears demand is stronger than expected and helping drive prices up.

Manufacturers are also struggling to substitute New Zealand WMP with domestic stocks due to differences in taste and colour profiles. 

“This is a dynamic we will be watching carefully as we make our way through the second half of 2020.”

$6.50 payout reaffirmed

Westpac has reaffirmed its forecast payout of $6.50/kgMS for the 2020-21 season.

Nathan Penny expects dairy auction prices to remain firm through the New Zealand winter. Prices may weaken later in the season – the peak New Zealand production months.

Upcoming auctions will see more volumes of dairy products on offer as NZ production ramps up in the coming months.

Penny says if prices hold up in the coming auctions, the bank will reassess its forecast milk price.

Fonterra this month narrowed its forecast range to $5.90/kg to $6.90/kg, lifting the bottom-end of the range by 50c.

The co-op said the lift was predominantly driven by improved market conditions in China.

For farmers, the lift in the bottom of the range has allowed Fonterra to increase its advance payments. 

Penny says the 25c lift in the forecast midpoint, $6.15/kgMS to $6.40/kg equates to $450 million of additional farm income.

More like this

No easy ride for struggling sheep farmers

Stubbornly high farm input costs, a slow Chinese recovery and a flood of Australian lamb onto the global market are the main factors contributing to the tough times being faced by NZ's sheep farmers.

Covid's urban/rural divide

According to a new study from the University of Otago, there was a visible rural/urban divide in Covid-19 vaccination rates.

Covid inquiry to visit Northland

Better understanding the impact of the Covid-19 pandemic on the people of Northland, and the role communities played in the pandemic response, will be the focus of a visit from the Covid-19 Inquiry, says inquiry chair Professor Tony Blakely.

Featured

Dairy sheep and goat turmoil

Dairy sheep and goat farmers are being told to reduce milk supply as processors face a slump in global demand for their products.

Hurry up and slow down!

OPINION: We have good friends from way back who had lived in one of our major cities for many years.

Editorial: Passage to India

OPINION: Even before the National-led coalition came into power, India was very much at the fore of its trade agenda.

National

Knowing bugs means fewer drugs

A mastitis management company claims to deliver the fastest and most accurate mastitis testing available at scale for New Zealand…

Machinery & Products

100 years of Farmall Tractors

Returning after an enforced break, the Wheat and Wheels Rally will take place on the Lauriston -Barhill Road, North-East of…

JD unveils its latest beast

John Deere has unveiled its most powerful tractor ever, with the launch of the all new 9RX Series Tractor line-up…

Biggest Quadtrac coming to NZ!

In the biggest announcement that Case IH Australia/New Zealand has made around its tractor range, its biggest tractor is about…

A different shade of blue for Norwood

Norwood and ARGO Tractors, the Italian manufacturer of Landini and McCormick tractors, have announced an agreement that gives Norwood exclusive…

Kubota tests diesel engines

Kubota last month used the UK LAMMA Show to test the water with its new 200hp, four-cylinder 09-series diesel engines.

» Latest Print Issues Online

The Hound

Why?

OPINION: A mate of yours truly wants to know why the beef schedule differential is now more than 45-50 cents…

Fat to cut

OPINION: Your canine crusader understands that MPI were recently in front of the Parliamentary Primary Sector Select Committee for an…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter