18 Nov 2020

Demand from China drives increase in dairy prices

2:10 pm on 18 November 2020

Dairy prices firmed at the global dairy auction overnight with the average price rising by 1.8 percent.

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Prices for dairy products at auction lifted slightly more than expected, an analyst says. (file pic) Photo: RNZ / Carol Stiles

The average price is now $US3157 ($NZ4582) a tonne. This compares with a 2 percent fall at the last auction two weeks ago.

The price of wholemilk powder increased 1.8 percent to $US3037 a tonne. Prices for other products sold were mixed, with gains for butter and skim milk powder, but falls for cheese and other products.

NZX senior dairy analyst Amy Castleton said prices at auction had lifted slightly more than expected, with good buying out of China, particularly for whole milk powder and butter.

"That seems to have driven a lot of the lift," she said.

ANZ agri-economist Susan Kilsby said there had been some concerns that stocks may be building in China, so it was really positive to see good, strong demand from that market for the dairy industry.

"We do often see buying from China ease back a little bit at this time of the year, as they've sort of filled their buying programme for early next season when they have those tariff rate advantages."

ASB's Commodities Weekly report noted the result was broadly in line with what was seen at other recent auctions - with prices moving less dramatically than earlier in the year.

"The results continue to suggest a more settled market than we had earlier in the year, when sharp falls and steep lifts were the order of the day and Covid-driven uncertainty was at its peak," the report said.

It said the biggest uncertainty was still domestic milk production. While grass growing conditions in New Zealand had been strong so far, it said there was a risk conditions could dry off substantially over the summer amid hotter temperatures and lower-than-average rainfall in the South Island.

For the 2020/21 dairy season Fonterra is forecasting a payout range of between $6.30 and $7.30 a kilogram of milk solids.

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