Virus jitters put global pressure on dairy prices
Virus jitters appear to have affected international milk prices.
The Global Dairy Trade auction held this week saw prices for key New Zealand dairy export, wholemilk powder, fall 6.2 per cent to US$3039 a tonne, the lowest level since August last year.
The overall index fell by 4.7 per cent. Two weeks ago it was up 1.7 per cent.
The fall in dairy prices is one of a number of emerging knockon effects from the coronavirus outbreak, including a drop in demand for meat and logs, due to port and factory closures in China.
The other main export product, skim milk powder, dropped in price by 4.2 per cent to US$2907 a tonne, while anhydrous milk fat fell by 4.5 per cent to US$4626/tonne.
Butter made a 0.2 per cent gain to US$4258 a tonne and butter milk powder slid 5.2 per cent to US$2,886/tonne.
Westpac head of NZ strategy, Imre Speizer, said the results contrasted strongly with January, when wholemilk powder prices recovered from a short-lived dip the previous month. Previously, the market had been strong for several months.
‘‘The obvious explanation for [the] decline is uncertainty regarding the coronavirus outbreak ... with global equities, interest rates, industrial commodities and risky currencies falling sharply.’’
He said there could be positive or negative risks to the near term, as the steps China had taken had kept many factories closed.
‘‘That has meant less demand for their inputs, including milk powder. These disruptions might prove to be short-lived, but that depends on what further steps the [Chinese] government might take to contain the spread of the virus.’’
Back home, persistently dry conditions in the upper North Island and eastern South Island could mean lower production this season in any case.
Westpac’s current forecast for Fonterra’s milk price is $7.40 per kilogram of milk solids, while the futures market was pricing it at $7.20.
China is Fonterra’s major key market, with an extensive food services business there.
The company reportedly supplies about 11 per cent of China’s dairy consumption.