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Rising dairy demand in China

According to Nathan Penny, senior agri economist at Westpac New Zealand, a pick-up in the Chinese economy should translate into increased Chinese dairy demand in the year ahead. He added, “We expect the Chinese economy to rise by 6% over 2023 from a lacklustre 3.5% over 2022.”

Overnight on November 15th, auction prices for dairy products went up, putting an end to a streak of three days in which prices had gone down. The general price index increased by 2.4%, with crucial whole milk powder (WMP) prices showing an increase of 3.1%. Penny highlights the fact that overall and WMP costs are still lower by 18% and 19% respectively compared to the same period last year.

The prices during the auction were inconsistent from product to product, with three products experiencing price increases and three experiencing price decreases. Prices of skim milk powder (SMP) increased by the same amount as prices of whole milk powder (WMP), but prices of anhydrous milk fat (AMF) increased by 2.7%. The addition of SMP, WMP, and AMF together accounted for 87% of the product that was sold, which resulted in a 2.4% increase in the overall price.

Penny is very emphatic on the fact that “this result was better than both our expectations and the market expectation for essentially a flat result.” The encouraging finding comes after China’s government decided to loosen limits on covids. As a result of the slowdown in the Chinese economy, the demand for dairy products in China had been steadily declining throughout the year.
expansion of the economy

Penny believes that the recent relaxation of limitations on covid in China may be an indication that Chinese officials are moving toward adopting a more pragmatic approach to covid. “We had predicted that this would be the case at some point in the future, and on that basis, we forecast the Chinese economy to rise by 6% over 2023 from a sluggish 3.5% over 2022.”

Penny anticipates that the improvement in the Chinese economy and the easing of limitations on Covid would result in an increase in the demand for dairy products in China during the next year. These projections lend credence to Westpac’s 2022-2023 milk price forecast of NZ$8.75 (US$5.42) per kilogramme of milk solids. “At the same time, the relaxation in the Chinese Covid limits and the uptick in pricing overnight bode well for our 2023-2024 projection of NZ$10.00 (US$6.20) per kg MS,” writes Penny. “This bodes well for our 2023-2024 forecast of NZ$10.00 (US$6.20) per kg MS.”

The Australian Dairy Farmers Corporation (ADFC) has increased the price that it pays to its various suppliers. It was one of the first processors to put a price increase into effect for this season. To this point, only a small number of processors in Australia have proposed any sort of price adjustment. ADFC providers will be compensated an average of AUS$9.90 (US$6.61) per kilogramme of milk solids throughout the 2022-2023 season. This amount will be backdated to the beginning of July.
Milk price

According to statements made by Stephen Sheridan, the newly appointed chief executive of Australian Dairy Farmers, increased input costs are putting a strain on primary producers as well as processors, despite the fact that milk prices are trending upward.

“The cost of inputs, such as labour force shortages, the price of energy, fertiliser, electricity, and gas for the processors.” Feed costs, which have been impacted as a result of recent flooding. All of these factors are having an effect on the costs of the inputs, which in turn has an effect on the profitability. Because of its high energy requirements, dairy farming is particularly vulnerable to the negative effects of inflation and interest rate fluctuations.

The quantity and quality of grass across Europe has deteriorated as a result of the hot and dry weather that occurred over the summer, according to the short-term prognosis for agricultural markets in the EU. In addition, yields of the primary crops that are used for feed have decreased.

Numerous farmers had already begun using some of their winter feed during the summer, which resulted in a decrease in crop growth of 0.4% and a further culling of their herd of 0.9%. In 2022, it is anticipated that milk collection in the EU will decrease by 0.5%. The decline in milk powder exports is primarily responsible for the seven percent dip in EU dairy exports.

It is possible that farmers in Europe will continue to face difficult conditions at the beginning of the year 2023 as they attempt to contend with high input costs and anticipated declining demand. It is anticipated that the yield growth could be slightly higher (0.6%) and could compensate for further reductions (-0.8%) in the dairy herd. This is based on the assumption that weather conditions would be typical.

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