Chinese demand balances dairy prices

Chinese demand will keep the dairy markets balanced for the rest of the year but commodity values have ‘likely peaked’, according to Rabobank.

Exporters were now gearing up their production in response to the higher prices. Wet weather in New Zealand and drought in Australia has limited output growth, but Rabobank was now expecting ‘healthy milk production growth’ across both countries.

However, Chinese demand should prevent a price rout, with import demand boosted by disappointing growth in domestic production, following a spree of exits by farmers and a hot summer.

Rabobank senior analyst Michael Harvey said while the sector had witnessed a record price spread between dairy fats and proteins, overall values had been through a ‘period of relative stability’, suggesting a ‘relatively balanced market’.

He added he expected milk production growth to accelerate over the coming months.

“Solid demand growth in South East Asia continues to offer further support,” Mr Harvey said.

He added taking into account these dynamics ‘the outlook for [dairy] commodity markets is for a balanced market to continue’.

“Milk production growth across the export regions is revving up, and the pace will accelerate in the coming months.”

Futures prices for whole milk powder have dropped, with butter prices continuing to decline following a surprise drop in values at the GlobalDairyTrade (GDT) auction on October 3. But many commentators have remained upbeat on dairy price prospects over the short-term.

ASB Bank remained optimistic, highlighting the setback in milk output from wet weather in the world’s largest exporter.

“Despite the dip in prices overnight, we see potential for overall prices, particularly for whole milk powder, to push higher over coming months,” a bank spokesman said.

“New Zealand weather has been poor, and production is reportedly back on last season.”


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