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Tuesday, 22 September 2020 08:56

Prices expected to wax and wane

Written by  Sudesh Kissun
Good weather is boosting NZ milk production this season. Good weather is boosting NZ milk production this season.

Expect more of the same as dairy prices on Global Dairy Trade (GDT) broke a two-month drought and posted an increase last week.

The GDT price index rose 3.6% while whole milk powder (WMP) prices rose 3.2% to US$2,985/metric tonne. WMP prices now sit 8.5% below their recent peak in July.

Westpac senior agri analyst Nathan Penny says prices continue “to wax and wane as expected”.

“The pattern of price falls followed by prices rises is in line with what we have been expecting,” he told Rural News.

Covid outbreaks over August and early September put pressure on market confidence and in turn on prices. But as Covid case numbers settle, confidence has returned to dairy markets and prices have stabilised once again.

Penny expects this pattern to continue.

“By and large most key dairy markets (notably China) continue to manage Covid well, but outbreaks are likely to occur from time to time,” he says.

“On the flipside, if the virus surges in key markets, then prices are likely to fall below recent ranges. Stepping back, global dairy demand, particularly from China, continues to underpin dairy prices. We do note though that milk fat prices are softer given their exposure to restaurant and café demand more than other products. On the supply side, global supply growth is relatively contained.”

RaboResearch dairy analyst Thomas Bailey says the price rise signals continued volatility.

But he notes that farmers will be happy with last week’s results.

“The results should support broader increases in prices around the world, boosting profitability for dairy farmers, and eventually resulting in a bump in milk supplies,” he says.

One factor playing on buyers’ minds would be security of supply from New Zealand. A weather calamity in NZ would drive prices higher.

However, ASB senior analyst Chris-Tennent Brown says with good spring weather, data shows production is up on last year.

“We don’t think buyers will be too worried about availability of product from New Zealand over the coming months.

“With that in mind, the WMP prices achieved last week are encouraging.”

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