Wednesday, 13 April 2022 08:55

Shutdown hits milk prices!

Written by  Sudesh Kissun
Major disruptions to Chinese supply chains following the lockdown in Shanghai is leading to local dairy production being redirected away from fresh milk into less perishable powders. Major disruptions to Chinese supply chains following the lockdown in Shanghai is leading to local dairy production being redirected away from fresh milk into less perishable powders.

Havoc wreaked in parts of China by Covid is being blamed for the latest drop in whole milk powder (WMP) prices.

Major disruptions to Chinese supply chains following the lockdown in Shanghai is leading to local dairy production being redirected away from fresh milk into less perishable powders.

Chinese authorities last week extended a lockdown in Shanghai to cover all of the financial centre's 26 million people - a major test of China's zero-tolerance strategy to eliminate the coronavirus.

ASB economist Nat Keall says this means the Chinese WMP market is now well supplied.

But he points out that the current dynamic in China isn't likely to be permanent, which is a positive for NZ dairy producers.

Dairy prices in last week's Global Dairy Trade (GDT) fell, with the price index down 1%. However, WMP prices dropped 1.5% to US$4,532/metric tonne.

Skim milk powder rose 1% to US$4,599/MT, cheddar rose 2.7% and butter dipped 0.6%.

Keall says the latest GDT result highlights the drop in WMP prices, but it seems buyers don't expect the glut to last.

"The contract curve is looking unexciting over the near term - albeit at a still healthy US$4,400/MT - but there's a sharp kink at contract number 5, which suggests prices still have quite a bit of momentum and there's an eagerness to secure supply once the near term WMP glut subsides," he told Rural News.

Looking further ahead, Keall says that Chinese economic growth is set to slow over the course of the year, but dairy's status as a staple food means demand isn't all that elastic.

He says dairy demand is a global story: buying activity from South East Asia and the Middle East is also acting as a support.

Nat Keall FBTW

ASB economist Nat Keall.

At the same time, global dairy production is still looking very weak.

Keall says the latest production data in both the US and Australia is poor - down 6.1% and 0.3% year-on-year respectively.

Things aren't that flash in NZ either, with drought conditions stretching into the spring now.

"To sum up all of those threads: don't expect recent reticence for NZ product from Chinese buyers to last," Keall explains. "While demand is set to ease a bit over the year, that tight supply picture should keep prices well supported."

He says ASB is retaining its lofty milk prices forecast for this season ($9.50/kgMS) and also next season ($9.20/kgMS).

More like this

Gaslight much?

OPINION: Labour leader Chris 'Chippy' Hipkins is carrying on the world-class gaslighting of the nation that he and his cohorts started after their disastrous Covid response; now trying to undermine the Covid inquiry to protect his own backside.

Sorry, not sorry

OPINION: Did former PM Jacinda Ardern get fawning reviews for her book?

Every exhibitor with something valuable to offer for farmers

OPINION: Welcome to the second annual NZ Dairy Expo at Matamata – an event created to bring together the best of the New Zealand dairy industry in a focused, grassroots environment where dairy farmers and rural professionals can meet, talk, compare products, and make smart decisions for their farms.

Featured

Horticulture hit badly in Nelson/Tasman

HortNZ's CEO, Kate Scott says they are starting to see the substantial cumulative effects on their members of the two disastrous flood events in the Nelson Tasman region.

National

Machinery & Products

» Latest Print Issues Online

The Hound

Gaslight much?

OPINION: Labour leader Chris 'Chippy' Hipkins is carrying on the world-class gaslighting of the nation that he and his cohorts…

Our own 'Clarkson'

OPINION: The huge success of former Top Gear host Jeremy Clarkson's new TV show, Clarkson's Farm, and the boost it…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter