Dairy prices fell for a fifth consecutive global auction, as Covid-19 lockdowns in China dent demand.
The Global Dairy Trade price index dropped 2.9% to 1340 at the bimonthly auction overnight. That follows an 8.5% fall at the previous auction.
The decline comes after steep rises in dairy prices this year pushed the index to record levels, as tight supply underpins demand. However recent auctions have been impacted by supply chain disruptions in China.
“North Asian demand is not as hot as normal,” said NZX dairy insights manager Stuart Davison. Still, demand from the rest of the world “is still hot”, he said.
Davison said he remained optimistic on the outlook for dairy prices.
“Following the previous event’s dramatic crash, this event has been the sort of settling that is usually expected after that scale of movement; prices are just finding their feet, albeit drifting slightly lower,” he said.
“Demand is still relatively steady, as prices are finding a new floor price that buyers are willing to participate with.”
Fonterra factors in fat and protein levels in milk when buying it off farmers.
Whole milk powder, which has the most impact on what farmers are paid, recorded the biggest drop, with the average price down 4.9% to US$3934 (NZ$6063) a tonne, after a larger offer volume of instant whole milk powder.
Butter fell 1% to US$5750/t, skim milk powder slipped 0.6% to US$4116/t, and cheddar slid 0.1% US$5635/t. Anhydrous milkfat advanced 0.6% to US$6043/t.
Last week, Fonterra lowered its forecast milk payment to farmers for this season to between $9.10 and $9.50 per kilogram of milk solids. That reduced the midpoint of the range, which farmers are paid off, to $9.30 per kgMS from $9.60 per kgMS.
Fonterra chief executive Miles Hurrell cited Covid-19 lockdowns in China, an economic crisis in Sri Lanka and the Russia-Ukraine conflict among recent events which had resulted in short-term impacts on global demand for dairy products.
The $9.30 per kgMS midpoint for this season, which finishes at the end of this month, would still be the highest milk payment since Fonterra was formed in 2001.
As the country’s biggest processor, Fonterra’s milk payment sets the benchmark for its competitors.