Dairy price drop linked to Covid spike

Cows graze on the Taieri Plain, south of Dunedin, this week. PHOTO: STEPHEN JAQUIERY
Cows graze on the Taieri Plain, south of Dunedin, this week. PHOTO: STEPHEN JAQUIERY
A drop in dairy auction prices this week is being linked to a spike in Covid-19 cases and the return of lockdowns in Europe.

Both whole milk powder and overall prices posted a 2% fall. Skim milk powder prices led the price falls, dipping 4.4%, while anhydrous milk fat was down 2.6%.

Butter prices recorded their third consecutive rise, up 3.9%, while butter milk powder prices were up 1.2% from two auctions ago.

In Westpac’s latest dairy update, senior agri economist Nathan Penny said the latest Covid-19 developments were likely to dampen global dairy demand and therefore prices, at least temporarily.

"With that in mind, we note that China and the rest of Asia have led the rebound in dairy demand and prices and on that front, Covid developments are more benign.

"Accordingly, we anticipate that the dip in dairy prices is likely to prove temporary," Mr Penny said.

The election result in the United States —whatever way it went — would matter for markets, including dairy. Longer-term, the result would have an impact on global trade policy.

ASB economist Nat Keall said GDT volumes remained stubbornly down on year-ago levels. The total volume sold at the auction fell about 8% versus the same time last year.

Volumes sold have been down on year-ago levels at every auction since the beginning of July, after rising sharply earlier in the year as buyers rushed to secure supply amid fears of wide-scale Covid-related supply chain disruption and a slowdown in international trade.

The shape of the contract curve was shifting too. There had been a bit of a "kink" in the curve over recent auctions; demand for nearer-dated contracts was much higher.

At the latest auction, the curve shifted in the opposite direction; demand was lower at the nearer term and then rising out to longer dates.

That might suggest buyers had built up good stockpiles for the time being after the recent lifts over recent auctions.

ASB was retaining its $6.75 milk price forecast for the 2020-21 season, saying this week’s shift was not dramatic enough to change that view.

The ANZ World Commodity Price Index gained 1.9% in October reversing the downward trend present in the past couple of months.

ANZ agri economist Susan Kilsby said recent strength in dairy prices had been the main factor driving the index higher.

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