TL;DR: Chinese participation in Global Dairy Trade auctions shows signs of increase, with a recent rise in whole milk powder prices. Economists watch closely, as Fonterra’s forecast remains optimistic despite global economic pressures.
Recent developments hint at a potential resurgence of Chinese participation in the Global Dairy Trade (GDT) events, though it’s premature to confirm a trend. In the latest GDT auction, a noticeable uplift in prices was recorded, with an overall increase of 2.8% and a more significant 3.4% spike in whole milk powder (WMP) prices, which are now pegged around US$3246 per metric ton.
China, recognized as the largest global dairy importer and a key market for Fonterra’s whole milk powder, has shown a reticent stance in recent times, attributed to the domestic economic strain exacerbated by the pandemic-induced lockdowns.
Market Observations
ASB economist Nat Keall remarked on China’s noticeable, albeit modest, participation in the recent auction, contrasting sharply with the prior one, where a notable price dip was observed. The Chinese buyers accounted for approximately half of the WMP on offer. “The continuation of this activity in future auctions is yet to be seen,” Keall commented.
Kelly Eckhold of Westpac also acknowledged the return of Chinese buyers, alongside participants from the Middle East and Europe, marking a significant shift. European buyers, in particular, secured a large share of products, underscoring a trend of increased auction support, possibly reflecting declining domestic production. Despite the price stabilisation around long-term averages, the cost pressures on farms have surged considerably.
Forecasts and Expectations
With the season nearing its conclusion, Fonterra’s projected milk price range stands at $7.50-8.10 per kgMS, targeting a midpoint of $7.80/kgMS. Predictions from ASB and Westpac hover around $8 and $7.90/kgMS, respectively, with Fonterra already having secured most of its product pricing, suggesting minimal room for further price influences this season.
Keall anticipates the WMP prices to oscillate within a tight bracket, finding support near the US$3000 per metric ton mark and encountering resistance close to US$3500/MT. A more pronounced upward movement in prices is not expected until the latter half of the year.
As the new season approaches on June 1, many eyes are set on the initial milk price forecast, with ASB projecting a promising $8.35/kgMS. Despite recent price retractions at auctions, favourable exchange rate movements could provide a cushion for Fonterra’s hedging strategies, maintains Keall.
