At the latest Global Dairy Trade auction this week, prices slid across the board, with whole milk powder prices down 4.4 percent and the overall GDT index down 4.6 percent.
Athaniel Keall, an economist at ASB Bank in New Zealand, described the auction as “pretty soggy”, adding that the futures market would drop milk powder prices by around 2%.
However, he said he still expects tight global supply to eventually push prices back up.
“As we have long emphasized, global dairy production remains extremely weak in many jurisdictions. This is particularly true for the EU – the world’s largest single exporter – which is also facing a bleak end to the year as energy prices rise.
“New Zealand milk production is also likely to be subdued – while weather indicators are looking good, pasture growth has been mixed, many farm inputs are still expensive and labor shortages remain a real challenge,” he said.
Keall also said global growth is expected to slow further over the next few years, but we still don’t think milk consumption will fall enough to offset the impact of tighter supply.
“In the medium term we just don’t think there will be enough supply to meet demand and that should be a boon for milk prices,” he said.
However, he said that near-term demand simply isn’t there for the time being.
“Action has been fairly muted over the past few GDTs and a number of culprits have been blamed: the strong US dollar hitting buyers in the developing world hard, the ongoing disruption in consumer behavior from China’s regular lockdowns, and relatively strong short-term Chinese milk supplies .
“The truth is likely a combination of all three (and the last two factors are related, with weaker consumption helping to keep Chinese inventories high after strong production earlier in the year, even if production has subsequently softened ).
However, prices for about 25% of this season’s volume to ship fall in October and November, so the weaker near-term outlook has an outsized impact on our forecast.
“We have now pushed back our forecast milk price recovery to the end of the year as inventories in China are falling, consumption patterns are (hopefully) normalizing and we see a return in auction demand,” he said.
ASB has lowered its NZ Farmgate milk price forecast for this season to $9.40 per kgms from our previous $10 per kgms.
“We would like to emphasize that this is still at the upper end of Fonterra’s current forecast range and this would represent a very strong result – the highest price on record in nominal terms and the fourth or fifth highest after adjusting for inflation,” he said.
https://www.independent.ie/business/farming/dairy/milk-prices/demand-concerns-weigh-on-global-dairy-trade-42078295.html Concerns about demand are weighing on the global milk trade