Global dairy prices weaken as China reduces its demand

The ANZ world commodity price index hit a new record in March, lifting  3.9%.  Prices are very strong across most commodities, although none of the sub-indices are currently at record levels.

In local currency terms, the index gained just 0.5%, as local returns were eroded by a 3.1% gain in the trade weighted index (TWI).

While farmers were  digesting this  news, the latest global dairy auction  recorded a dip in prices as  demand weakened from Chinese  buyers.  The GDT  price index slid 1% to 1564 at the  auction following a 0.9% fall at the previous bimonthly auction.

Dairy prices have risen steeply at auction this year, pushing the index to record levels, as tight supply underpins demand.

But at the latest auction, demand weakened from China, the world’s largest dairy market, as the country puts major cities into lockdown to try and contain an outbreak of Covid-19, causing disruption to supply chains and prompting local dairy processors to increase production of milk powder, denting demand for imported product.

North Asian buyers almost halved their WMP purchases compared with the previous auction, while South East Asian/Oceania and African bidders bought more.

NZX  dairy insights  manager Stuart  Davison  said: 

“Overall, the same market fundamentals remain in place, global demand is strong, and supply continues to struggle”.

The WMP price  which strongly influences the payouts for local farmers, was down 1.5% to $US4,532 a tonne.

Davison said prices weakened as there was an oversupply of regular whole milk powder.

Skim milk powder, also a key driver of the milk price paid to farmers, rose 1% to US$4599/t.

Davison said demand remained strong for skim milk powder, with buyers seeking 3.5 times more product than was on offer at the auction.

The latest auction comes as Northern Hemisphere milk production nears its peak. Still, milk supply in Europe is expected to remain under pressure as the war in Ukraine disrupts fertiliser and grain markets.

Butter slipped 0.6% to US$6,891/t, while cheddar rose 2.7% to a record US$6,472/t. Other  movements included falls for  anhydrous milkfat  2.5% to US$6,908/t, and lactose  0.6% to S$1,598/t. Buttermilk powder rose 6.3% to US4,461/t.

 

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