Coronavirus uncertainty keeps lid on dairy prices

Coronavirus uncertainty keeps lid on dairy prices

Coronavirus
Aa

Coronavirus-induced market uncertainty continues to keep a lid on global dairy prices.

Aa

Coronavirus-induced market uncertainty continues to keep a lid on global dairy prices.

Prices were down again in the Global Dairy Trade auction on Tuesday night, but by less than the falls in recent weeks.

Overall global market dynamics still look positive - with supply growth tempered by challenging seasonal conditions in parts of New Zealand and uncertainty elsewhere due to the coronavirus.

The Australian dollar is also favouring exports, falling to an 11-year low in the last week.

The GDT overall index was down 1.2 per cent, led by a 4.7pc fall in cheddar prices and a 4.8pc fall in buttermilk powder.

But the key whole milk powder index was down just 0.5pc, while skim milk powder was down 3.2pc.

Butter (up 1pc), lactose (up 5.7pc) and rennet casein (up 0.5pc) bucked the overall trend.

Related reading:

Analysts say uncertainty is influencing the market, as the impact of coronavirus remains unclear.

"Last night's results suggest the coronavirus outbreak continues to affect dairy commodities, albeit moderately so far," Westpac head of NZ Strategy Imre Speizer said.

"Since the outbreak gripped global financial markets in late January, whole milk powder prices have fallen 8.7pc.

"In comparison, Brent crude oil has fallen 20.4pc and copper has fallen 9.9pc."

Mr Speizer said the coronavirus outbreak posed both positive and negative risks to demand.

Slower activity could crimp demand for dairy inputs to other products, but a renewed focus on nutrition could boost milk demand.

Maxum Foods director Dustin Boughton in the company's Global Dairy Commodity Update also pointed to uncertainty, saying the impacts on consumer demand, trade flows and product mix were impossible to forecast with any confidence.

Markets had reacted negatively to supply chain disruption and the fears of weaker demand due to the rapid spreading of coronavirus in China, he said.

The response by China and other governments had impacted consumer spending in China and severely disrupted milk flows, processing and land and sea flows.

"However, uncertainty grows as we are now in the early stages of a global pandemic, rippling into several regions," he said.

"The risk of contracting the disease will change the way people shop, whether they eat out, as well as how milk and ingredients reach processors and retailers.

"Demand impacts are inevitable in affected regions."

NZ bank ASB senior rural economist Nathan Penny was more confident, saying dairy prices were starting to show signs of stabilisation and the impact of the virus on dairy markets would be modest and shortlived.

"The number of new virus cases in China is falling," he said.

"In addition, some normality is returning to the Chinese economy, albeit in patches.

"Encouragingly, Fonterra reported last week that while there was some disruption, its products were reaching Chinese markets."

Market in tight balance

Mr Boughton said despite coronavirus, the underlying fundamentals of the global market remained relatively positive.

"The tight balance in dairy markets might ease with improving growth in milk supply," he said.

Mr Speizer said on the supply side, persistently dry conditions in the North Island and flooding in the southern South Island could see milk production fall short of what the market was expecting.

"Against that, Canterbury and Otago, where irrigation is widespread, have reported good growing conditions," he said.

Australian dollar

The falling NZ and Australian dollars, in response to the coronavirus threat, have helped underpin export prices.

Mr Penny said the recent fall in the NZ dollar to about US$0.62 was providing an opportunity to hedge at a supportive level for the season ahead.

Australian analyst FreshAgenda's dairy export index hit its highest mark on record, largely as a result of the weaker dollar.

"The Australian dollar fell to an 11-year low against the greenback, ending the week at US$0.6515, as coronavirus fears continued to infect financial and commodity markets across the board," it said.

Its commodity milk value also hit a high, lifting by 17 cents to $7.77 a kilogram of milk solids.

But FreshAgenda said with the bulk of 2019/20 commodity sales already contracted for local manufacturers, this was unlikely to impact the average commodity value of milk for the current season, which it estimated was still hovering around $6.50/kg MS.

Want to read more stories like this?

Sign up below to receive our e-newsletter delivered fresh to your email in-box twice a week.

The story Coronavirus uncertainty keeps lid on dairy prices first appeared on Farm Online.

Aa

From the front page

Sponsored by