Middle East demand cushions global dairy price drop at latest GDT auction
The upheaval in the Middle East may have eased the fall in global dairy prices last week.
Second waves of COVID-19 around the world continue to weigh on dairy prices, according to Westpac senior agri economist Nathan Penny.
He says the steep price fall over August comes as several countries battle renewed outbreaks of COVID-19 and as total global case numbers continue to increase rapidly.
“Indeed, some dairy markets and trade hubs such as Hong Kong, Singapore and Vietnam that were successfully containing COVID-19 have seen cases spike over August,” says Penny.
“With this in mind, it appears that dairy markets are acting on this renewed risk and have pushed prices lower.”
He made these comments after last week’s Global Dairy Trade (GDT) auction recorded its third straight drop in dairy prices.
The key whole milk powder prices posted a 2.2% drop, while overall auction prices slipped 1.7%. Over the two auctions this month, WMP prices have slipped 9.5%, while overall prices have fallen nearly 7%. Prices are back below their pre-COVID-19 levels after having wiped those price losses over July.
Penny told Rural News that things have changed since the COVID-19 sweet spot over early July.
“At that stage, by-and-large, key dairy markets such as China and South-East Asia were seeing low and relatively stable case numbers, with lockdown restrictions generally easing as a result.”
He expects outbreaks to wax and wane but says, generally, most key dairy markets (notably China) continue to manage COVID-19 well.
As countries get on top of virus flare-ups some of the August price falls may prove temporary.
On the flipside, if the virus continues to surge in key markets, then prices are likely to fall further.
RaboResearch dairy analyst Thomas Bailey notes that the dairy market is in a period of high uncertainty.
Bailey points out that US spot cheese prices have seen a 100% increase followed by a 40% decline since April.
“This level of extreme volatility may be behind us at this stage, but it is a reminder of the magnitude of volatility we have seen this year, and higher than normal market volatility is expected for months to come,” he says.
At last week’s auction demand from North Asia (primarily China) increased while other key buying regions stepped back their purchases considerably.
Bailey thinks while the Chinese national strategy might be to maintain larger inventories of dairy powders for food security purposes. The same is unclear for other markets such as South East Asia where such financing may not be an option or a focus within national programs.
NZ milk supply
All eyes will be on New Zealand milk production as the southern hemisphere production ramps up.
From a supply perspective and with spring around the corner, the normal lift in NZ dairy production will begin to weigh on prices.
Westpac’s Nathan Penny says the other dynamic in play will be spring weather and growing conditions.
“As this plays out, we will look to NZ production growth versus a year ago for additional direction to dairy prices.
“At this early stage and anecdotally, a mild winter has set up farmers well for a strong start to spring.”
Westpac is maintaining its $6.50/kgMS forecast payout for the season.
Managing director of Woolover Ltd, David Brown, has put a lot of effort into verifying what seems intuitive, that keeping newborn stock's core temperature stable pays dividends by helping them realise their full genetic potential.
Within the next 10 years, New Zealand agriculture will need to manage its largest-ever intergenerational transfer of wealth, conservatively valued at $150 billion in farming assets.
Boutique Waikato cheese producer Meyer Cheese is investing in a new $3.5 million facility, designed to boost capacity and enhance the company's sustainability credentials.
OPINION: The Government's decision to rule out changes to Fringe Benefit Tax (FBT) that would cost every farmer thousands of dollars annually, is sensible.
Compensation assistance for farmers impacted by Mycoplama bovis is being wound up.
Selecting the reverse gear quicker than a lovestruck boyfriend who has met the in-laws for the first time, the Coalition Government has confirmed that the proposal to amend Fringe Benefit Tax (FBT) charged against farm utes has been canned.
OPINION: Dust ups between rural media and PR types aren't unheard of but also aren't common, given part of the…
OPINION: The Hound hears from his canine pals in Southland that an individual's derogatory remarks on social media have left…