Hope coronavirus impact on dairy will be short-lived

A 4.7% overall fall in this week’s Global Dairy Trade auction ‘‘could have been worse’’, ASB senior rural economist Nathan Penny says.

There were signs the impact of the coronavirus outbreak on dairy markets would prove short-lived; Chinese buyers remained active at similar levels to recent auctions, while three product prices rose.

Those signs were consistent with the bank’s view the impact on dairy markets and prices would be modest and short-lived, Mr Penny said in a note.

However, the bank remained vigilant as the outbreak situation was fluid and dairy price implications were subject to change.

In New Zealand, the key dairying region of Waikato was very dry in parts, as were Taranaki, Northland, Nelson and parts of Canterbury.

If drought conditions continued to worsen over coming weeks, prices could ‘‘swing quickly back the other way’’, he said.

Westpac market strategist Imre Speizer said futures market pricing for the current season’s Fonterra milk price was $7.20, having fallen from a recent peak of $7.46 in late January.

Westpac’s forecast was $7.40 and this week’s auction presented some downside risk to that forecast, but it would still be achievable if the disruptions to activity caused by the coronavirus proved to be short-lived.

ANZ Research’s latest Agri Focus report said the bank’s milk price forecast for the present season had been revised down from $7.45 to $7.15, while its forecast for next season (2020-21) had dropped 50c to $7.10.

That was due to the NZ dollar firming over the past couple of months, combined with a weaker market outlook for commodity prices as the coronavirus situation weighed on market sentiment.

Dairy commodity prices generally were expected to remain above the long-run average as long as global supply remained constrained, but that would depend on how global demand held up in the coming months.

Milk production growth rates were modest in all of the main dairy exporting nations, meaning there was not an abundance of surplus dairy products to export.

The greatest present risk to international prices was the coronavirus outbreak. China was by far the largest importer of dairy products, so any change in demand from China directly influenced price, particularly the price of whole milk powder.

The virus outbreak could not have come at a worse time as it coincided with Chinese New Year, a period of celebration with families. Foods were often gifted as well, making it a massive consumption period for luxury goods, which included New Zealand fruits, meats and dairy products.

The outbreak had curtailed travel and discouraged public outings, including reducing restaurant dining.

Home deliveries of food had also decreased due to the perceived risk that delivery staff could spread the disease.

Add a Comment