Prices dipped more than most expected at the latest dairy auction, with price falls led by the fat group (with AMF and butter prices down circa 12pc each), but all-important WMP prices dipped 6.5pc as well, outstripping the future market view of a one to two per cent fall.
Nathaniel Keal, economist at ASM bank in New Zealand, said it was important to keep the dip in context.
“Commentary from various analysts have been throwing around bearish terms and talking of nosediving demand,” he said. “An 8.5pc fall in the overall GDT index is a large move over the course of a single auction, but the result only takes WMP and SMP prices back where they were in mid-January.
“Prices for all major products on offer continue to run around 30-70pc above long-run averages. Prices remain very high by any benchmark.”
Mr Keal said there are a few factors driving prices down, including China’s Omicron outbreak woes which he said have seriously disrupted the local dairy market, with raw milk being diverted away from fresh milk and into powders, meaning the market has been well supplied in the near term.
“This auction saw buyers from other regions pull back a little, perhaps with a view of seeing how the situation in China plays out, and to get a sense of how production in the northern hemisphere will shape up over late spring,” he said.
On balance though, Mr Keal said his view is the dairy market fundamentals still look pretty favourable to prices.
“Local production here in New Zealand is down five per cent year-to-date as of the end of March, while global production looks likely to be flat at best this season.
“Meanwhile, we expect demand in China to remain relatively robust despite the lockdown uncertainties.”
It comes as the board of Glanbia Co-op has announced that no penalties will be applied to milk suppliers that exceed their Peak Milk allocations in May or June in 2022.