Although China is buying, its demand is not raising dairy prices. With milk and product out there, and many economies struggling high inflation and facing recession, there is little reason for buyers to bid dairy prices higher, say NZX dairy analysts

By Alexandria Winning-Browne and Amy Castleton

Another negative. This one perhaps not quite so unprecedented though the magnitude was a little larger than expected.

Prices were down across virtually all products at this week’s Global Dairy Trade (GDT) event. The overall GDT price index fell 4.7%. Cheddar was the exception this time, scraping back a tiny bit of the losses it has seen recently. Prices were down across all other products. The SGX-NZX Dairy Derivatives market had anticipated losses against everything except anhydrous milkfat (AMF), but the actual losses at GDT were a little bigger than the market indicated.

Key commodity whole milk powder (WMP) prices fell 5.2%, with prices down across all contracts on offer. North Asia was the only region to increase its purchasing volumes, with all other regions down against both last event and the equivalent event last year. North Asia increased its volumes hugely against the same event last year.

Skim milk powder (SMP) had some mixed demand, with a few regions buying a bit more than the last event and the equivalent event last year. However this seems to be a case of preventing prices from falling even lower rather than pushing them higher.

Butter was mixed too. Most regions bought more than at the last event, but considerably less than the equivalent event last year.

AMF was very mixed across contracts, ranging from down 10.7% for C2 to up 1.1% for C5. It also saw similar mixed demand across regions against both the last event and the equivalent event last year.

This all indicates a very uncertain market. Buyers aren’t willing to invest in product if they don’t need to – and thus push prices higher – but there is still demand out there. Demand is just not strong enough for us to keep seeing the prices we have been seeing for dairy commodities over recent years.

China has been much vaunted as a ‘saviour’ for dairy commodity prices. That is, the idea that when Chinese demand ‘comes back’, prices will stop falling. Well I think the last few GDT events are evidence enough that this isn’t the case. North Asia – China – is buying. However their activity is not driving price, or at least not in the way that some in the market seem to expect they will. There isn’t enough reason for buyers to pay more than they need to at the moment. There’s plenty of milk and product out there, and most economies are in tough times with high inflation and likely recession.

This is the Analysts Opinion by Alexandria Winning-Browne, dairy analyst at NZX, and Amy Castleton, rural economist at NZX. The original is here.