A big slump in dairy prices overnight has been driven by
large Chinese stockpiles, but demand for milk powder will
eventually bounce back, a dairy analyst says.
Dairy product prices dropped 8.4 per cent overnight in the
GlobalDairyTrade (GDT) auction, bringing prices to their
lowest level since October 2012.
The drop comes after prices slumped 9 per cent a fortnight
ago, with prices dropping 41 per cent since February.
Agrifax senior dairy analyst Susan Kilsby said it was
disappointing that whole milk powder prices were down by so
much -- a drop of 11.5 per cent.
"It is really disappointing, because we've seen quite a lot
of strength in other dairy markets around the world," she
told Radio New Zealand.
"In the US, some of the products are at record prices at the
moment. But there we're talking cheese and butter, and the
whole milk powder market is quite a different story, very
much driven by supply out of New Zealand and buying out of
Ms Kilsby said China had bought a lot of product earlier in
the season and was still working through those supplies.
"So while they are still buying some product, they're not
buying enough product to put any upwards pressure on prices.
So we're just seeing these really weak results on GDT at the
However, the long-term outlook for the Chinese market was
still very strong.
"It's just a matter of time for this process to work itself
out and these stocks to be cleared," she said.
"We definitely are expecting it to bounce back."
Federated Farmers dairy chairman Andrew Hoggard told Radio
New Zealand the drop was "not pleasant".
However, the GlobalDairyTrade price was not what farmers got
paid. Those prices are set by dairy co-operative Fonterra,
which dropped its payout from $7 to $6 per kilogram of milk
solids last week.
Mr Hoggard said the GlobalDairyTrade auction gave farmers an
indication of what prices products would fetch.
"And that gives us an indication as to whether or not things
might be going down or up in terms of the milk price that we
get paid, so it's a good indicator of whether we need to
tighten things up in the business, or whether we can afford
to look at capital expenditure or not in the coming seasons."
The full impact of the GDT drop might not be felt until
later, if Fonterra dropped the milk price further.
"They are linked, but there is a lag effect. And if the
GlobalDairyTrade turns around quite quickly and comes right,
then we may not actually see a change."