19 Feb 2020

Dairy prices fall as coronavirus outbreak takes toll on trade

11:46 am on 19 February 2020

Dairy prices have fallen again in the latest global dairy auction, as the coronavirus outbreak takes its toll on trade.

Spoon with infant formula

Wholemilk powder prices fell by 2.6 percent, to its lowest in six months. Photo: 123rf

The average price at the overnight auction fell by almost 3 percent to $US3176 a tonne.

Following a 4.7 percent fall at the previous auction two weeks ago, it was the lowest price since January last year.

The price of wholemilk powder, which strongly influences the payouts for local farmers, fell by 2.6 percent to $US2966 a tonne, a six-month low.

China, which is currently grappling with the Covid-19 outbreak, is a large buyer of New Zealand dairy products.

ASB's senior rural economist Nathan Penny said the drop in prices was not a surprise, given the current disruptions to trade with China.

"Largely that fall has come about as a result of the concerns around the coronavirus ... everyone [chinese importers] is just being a bit more careful - understandably, given the concerns and the uncertainty about how this is going to play out."

Penny said the good news was product was still being sold to China, albeit at a discounted rate.

"They're still buying, still expecting things will come right over time and hence we haven't seen prices fall more steeply," he said.

Rob Gibson, a dairy analyst for the NZX's insights department, said bidders from other countries were taking advantage of the weaker Chinese buying power, with more product being sold to the Middle East.

For this season, Fonterra is currently forecasting a milk price payout ranging between $7.00 to $7.60 per kilogram of milk solids.

Gibson said despite the current disruptions, he still expected farmers would receive a healthy price for their milk at the end of the season.

"I wouldn't expect prices to be dipping below $7 as a result of this auction... we've had a couple of dips as a result of this outbreak and market sentiment responding to that, but overall prices are still hanging on quite well."

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