The biggest percentage fall came from buttermilk powder, which plunged 11.4 per cent to an average US$2973/tonne, after falling 4.4. per cent at the last auction.
Anhydrous milk fat fell 1.7 per cent with an average of US$5562/tonne.
Bucking the trend among the reference products was butter, which eked out a 0.2 per cent gain to US$4868 a tonne.
This morning’s fall puts downward pressure on Fonterra’s farmgate milk price forecast for the current season, which sits at $8.50–$10.00 per kg of milksolids (midpoint $9.25 per kg).
Westpac has already cut its forecast by 50c to $8.75 a kg.
NZX dairy analyst Stuart Davison said Chinese participation in whole milk powder buying remained “the elephant in the room”.
“Chinese buyers took around a fifth less wholemilk powder than at the equivalent auction last year, and with the low demand to supply ratio, they most likely secured the bulk of what they were after,” Davison said in a report.
In recent weeks, tens of millions of people have again been confined to their homes in lockdowns across 60 towns and cities as China pursues its zero Covid policy.
Westpac senior agri economist Nathan Penny said global dairy demand had weakened more than previously expected and he expected this dynamic to persist into the new year.
“Looking to 2023/24, we expect demand to rebound and for global dairy supply to remain weak,” Penny said.
Penny pointed out that prices had been on a slide over the last three three dairy auctions, while prices overall have dropped by over 18 per cent.
Weakness in demand largely traced back to conditions in China.
“Covid and the associated restrictions continue to batter the Chinese economy,” he said.
Westpac expects China’s annual growth to come in at 3 per cent over 2022 - significantly down on the official growth target of 5.5 per cent and 2021′s growth rate of 8.1 per cent.
Penny said China, as New Zealand’s largest market, had an oversized impact on global dairy prices.
“With that in mind, it is notable that the share of New Zealand’s dairy exports going to China has fallen over the past year or so, with the fall in China’s share coinciding with the fall in global dairy prices.”
Penny expects prices to remain weak for the remainder of the year and into the start of 2023 but he expects to see a rebound from February onwards, based on an expected 7 per cent growth rate in China over that year.
“We expect that as Covid restrictions are eventually eased, Chinese consumer demand, including for dairy, will quickly return,” he said.
The ongoing weakness in GDT prices is against the background of declining local production.
Fonterra’s New Zealand collections for September were 166.3 million kg, or 3.9 per cent lower than last September, the co-op said this week.
“September brought a tale of two islands with relatively normal early spring conditions in the South Island in contrast to continued wet, sub-optimal growing conditions in the North Island,” it said.
Season-to-date collections were 292.1m kg, or 3.9 per cent, behind last season’s.
