Global dairy prices slide on coronavirus fears

Global dairy prices fall 4.7pc on coronavirus fears

Dairy
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Global dairy prices fell 4.7 per cent on Tuesday night amid fears of the impact of coronavirus on Chinese demand.

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Global dairy prices fell 4.7 per cent on Tuesday night amid fears of the impact of coronavirus on Chinese demand.

But pundits are hopeful the impact will be only short-lived.

Tuesday night's fall wiped out gains in January's auctions but was not unexpected as whole milk powder futures prices had been falling in recent weeks as the coronavirus crisis spread.

New Zealand's key export - whole milk powder - led the falls, down 6.2pc, but cheddar, butter, lactose and rennet casein all posted increases.

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New Zealand bank ASBsenior rural economist Nathan Penny said the result could have been worse.

"Indeed, prices fell by more back on December 17, and the price fall overnight didn't even make the top 30 of auction price falls," he said.

There were signs in the auction detail that the virus impact on dairy markets would be short-lived.

"For example, Chinese buyers remained active at similar levels to recent auctions," he said.

"These signs are consistent with our central view that the coronavirus impact on dairy markets and prices will be modest and short-lived.

"In other words, we expect dairy market fundamentals to reassert themselves as the dominant driver of prices before too long.

"Nonetheless, we remain vigilant.

"The outbreak situation is very fluid and, with that in mind, dairy price implications are subject to change."

Westpac market strategist Imre Speizer said there were risks to near-term demand that could be affected by coronavirus developments (positive and negative).

"The steps that China has taken to contain the outbreak - such as extending the Lunar New Year holiday period, and limiting the movements of people - has kept many factories closed," he said.

"That has meant less demand for their inputs, including milk powder.

"These disruptions might prove to be short-lived, but that depends on what further steps the government might take to contain the spread of the virus."

In other words, we expect dairy market fundamentals to reassert themselves as the dominant driver of prices before too long. - Nathan Penn, ASB

Both analysts pointed to dry conditions in NZ as a positive factor for prices.

Mr Speizer said persistently dry conditions in the upper North Island and eastern South Island could see milk production fall short of what the market was expecting.

Mr Penny said if drought conditions continued to worsen in NZ in coming weeks, dairy prices had the potential to swing quickly back the other way.

"A fully-fledged drought has the capacity to throw dairy prices equally in the opposite direction," he said.

"In short, watch both spaces."

New Zealand's biggest exporter, Fonterra told the New Zealand Herald last week that the outbreak of coronavirus in China had not had an impact on its business.

But a Fonterra spokesperson said it was closely monitoring the situation there.

"If there is a sustained drop in consumption in China, for example fewer people eating in restaurants, then that could have an impact on our sales," the spokesperson said.

"We'll be watching GlobalDairyTrade (auction) results and our foodservice business over the coming month to get an indication."

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The story Global dairy prices slide on coronavirus fears first appeared on Farm Online.

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