NZ dairy prices are adrift because demand from China has been slow to pick up. Photo / NZ Herald
Westpac has trimmed its 2022/23 NZ milk price forecast to $8.40/kg - towards the bottom end of Fonterra’s $8.20-$8.80 range - on the back of weakness in global dairy demand.
The bank had previously forecast$8.75/kg.
Looking ahead, Westpac is sticking with its $10.00/kg forecast for 2023/24.
At this morning’s Global Dairy Trade auction, wholemilk powder prices, which have the biggest influence over the farmgate milk price, fell by 1.5 per cent to an average price of US$3,228/tonne.
Skim milk powder, the second most influential product, lost 3.5 per cent to US$2648/tonne.
Similarly, export log prices have picked up, surging by around 20 per cent since the start of the year.
In contrast, global dairy prices have largely yet to budge.
The exception to this overall weakness is butter prices, which have firmed by around 3 per cent so far this year.
“And this is the first sign that dairy demand is improving as Chinese consumers enjoy their newly found freedoms and head back out to restaurants, cafes and bakeries, places that use large quantities of butter,” Penny said.
That said, butter accounts for only a modest 8 per cent or so of the dairy products that count towards the calculation of Fonterra’s milk price, whereas whole milk powder accounts for around two-thirds.
“In other words, we need a broader lift in dairy prices for this to translate into a higher milk price,” he said. “It’s a matter of when, not if.”
China is New Zealand’s largest market and therefore has an oversized impact on global dairy prices.
The share of New Zealand’s dairy exports going to China fell from 43 per cent in November 2021 to around 30 per cent currently, with the fall in China’s share coinciding with the fall in global dairy prices.
New Zealand’s other key markets in the rest of Asia picked up some of the slack, although at lower prices than China had been paying.
NZX dairy analysts said in a report today’s auction result was unexpectedly soft, with cheddar (down 10.2 per cent) leading the way.
North Asia was present and buying at this event; however South East Asia/Oceania largely bought less product than at both the last event and the equivalent event last year, the report said.