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Analysts say the recent outbreak of Omicron in China is behind the recent drop in dairy prices.
The Omicron outbreak in China that sent 400 million residents into lockdown is behind the latest drop in dairy prices, analysts say.
The good news is that the price weakness is expected to be temporary.
Westpac senior agri economist Nathan Penny notes that the experience in other countries is that Omicron waves eventually pass.
"Some lockdown restrictions in China are already scheduled to lift," he says.
He says the 4.4% drop in whole milk powder (WMP) prices and 4.2% in skim milk powder (SMP) prices weren't unexpected.
Immediately prior to the auction, the futures market had indicated a 4% all in WMP prices.
China is New Zealand's key dairy market and lockdowns have impacted several major cities.
Penny says, with this in mind, it's not surprising that dairy demand and auction prices have taken a hit.
However, the magnitude and breadth of the price falls indicate that China's Omicron outbreak has surpassed all other dairy market concerns.
"At this stage, however, we expect this price weakness to prove temporary," says Penny.
ASB economist Nat Keall says the recent weakness in GDT events takes a little gloss off an outstanding period for prices but is understandable.
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