Dairy future topsy turvy
Milk powder prices have fallen to their lowest level in 12 months because of the coronavirus outbreak in New Zealand’s largest market, China.
But analysts are unsure of the direction prices might take because the big dry in the north of the country will likely see a drop in production.
‘‘There is an old adage that whenever there is a drought or big dry in the Waikato, global dairy prices sky rocket,’’ Federated Farmers dairy group chairman Chris Lewis said.
‘‘It has always been true and would be true if it was not for this situation with coronavirus.
‘‘One of the problems is distribution, because while the Chinese might buy product, they cannot ship it across country. We just hope like hell that by March it is all sorted,’’ Lewis said.
ANZ agriculture economist Susan Kilsby said the average price drop of 2.9 per cent on all products at the latest GlobalDairyTrade auction had been expected. She echoed Lewis’ comment that prices would normally rise in response to dry conditions.
‘‘Given that global dairy supplies are reasonably tight, usually a dry time would push prices up but we have got this massive negative factor of Covid-19.
‘‘So far Fonterra has maintained its GDT forecast volumes despite the risk of milk production falling. However if sales are falling off the GDT platform, this could actually prompt more product to be directed towards it,’’ Kilsby said.
Investment manager David Mahon, a New Zealander living in Beijing, said in his latest China Watch newsletter that while in the short term the damage to the catering sector would be considerable, China possessed some advantages in dealing with the crisis. ‘‘Chinese cities have the most sophisticated online purchasing and delivery systems in the world, which have been able to supply those under quarantine adequately, and allows some restaurants and other providers of essential goods and services to endure.’’ Mahon predicted the exporters which would suffer the most were those producing industrial goods, luxury items and other non-essential products.
On the other hand, ‘‘producers of fresh produce, quality food and healthcare products will see increased demand, but also greater consumer scrutiny regarding their integrity and provenance in the coming months,’’ Mahon said.
Kilsby said one of the key factors for New Zealand businesses was the quality of their relationships with Chinese buyers and consumers.
She singled out the horticultural industry, and particularly kiwifruit, for the attention it paid to investing in good relationships. The dairy industry was ‘‘reasonably’’ successful in that regard, Kilsby said.
Westpac market strategist Imre Speizer said the bank had lowered its farmgate milk price forecast for this season from $7.40 per kilogram of milksolids to $7.20/kg, reflecting the virus’ impact to date on world dairy prices. However, it retained its forecast of $7.30/kg for the following season, based on a gradual recovery in prices in coming months. Fonterra’s forecast, updated last December, lies in a range of $7-$7.60.