Lower Chinese demand keeps Fonterra prices static
USCHINA trade tensions and foreign exchange rates appear to take a toll on Fonterra’s fortnightly global dairy trade auction and prices were virtually unchanged.
The overall price index was unchanged from the last auction, with whole milk powder booking just a 0.1% gain to $US2958 ($NZ4393) per tonne.
The tonnage of products sold rose from 25,454 at the last auction to 34,076 tonnes.
ASB senior rural economist Nathan Penny said the auction result was ‘‘unremarkable’’ but confirmed key Chinese demand was lower and took prices with it.
During the past five auctions, overall dairy prices had fallen 9%, with whole milk powder prices down by a similar 8%.
‘‘Notably, once strong butter prices have fallen hard, down around 17% over this period,’’ Mr Penny said.
Because of the price decline, Mr Penny said ASB’s 201819 milk price forecast of $6.50 per kg of milk solids was ‘‘under review’’ against Fonterra’s current $7 per kg forecast.
‘‘Initially, with global demand still firm, the fall looked like it could prove temporary.
‘‘But this no longer appears the case,’’ Mr Penny said.
He said the catalyst for change was the escalation in USChina trade tensions, but the mechanism affecting dairy prices was currencies.
‘‘In particular, the Chinese yuan has fallen against not just the US dollar but also the New Zealand dollar,’’ he said.
Mr Penny said the yuan’s decline affected Chinese buying power, which lowered demand from New Zealand’s main dairy market.
He said as the USChina trade tensions dragged on, the more likely the yuan was to stay at the lower level, with Chinese dairy demand likely to remain lower, too.
‘‘It follows that lower demand equals lower prices,’’ he said.
Rennet casein was up 8% to $US4971 a tonne, cheddar rose 1.3% to $US3663, anhydrous milk fat rose 1.2% to $US5709 and skim milk powder declined 0.3% to $US1972.
Butter milk powder declined by 5.9% to $US2441 a tonne and butter was down 3.2% to $US4802.