Coronavirus concerns hit global dairy prices

Coronavirus concerns hit global dairy prices

ADF News
CHINA HIT: Factory closures in China due to the coronavirus have temporarily hit demand for milk powder.

CHINA HIT: Factory closures in China due to the coronavirus have temporarily hit demand for milk powder.

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Coronavirus concerns hit the global dairy market again on Tuesday night with prices falling 2.9 per cent - the second consecutive fall.

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Coronavirus concerns hit the global dairy market again on Tuesday night with prices falling 2.9 per cent - the second consecutive fall.

However, analysts believe the impact of the virus will be short-lived, but have cut their New Zealand farmgate milk price forecast for this season.

Whole milk powder prices fell 2.6pc to be at the bottom of the range for the last 12 months, while butter was down 3.9pc.

Only cheddar prices bucked the trend, up 5.3pc.

Westpac NZ market strategist Imre Speizer the results were unsurprising given the continuing uncertainty regarding the coronavirus outbreak.

"Looking ahead, there are risks to near-term demand, which could be affected by coronavirus developments (positive and negative)," he said.

"The steps that China has taken to contain the outbreak - such as limiting the movements of people - have kept many factories closed, which has meant less demand for their inputs, including milk powder.

"North Asian demand at last night's auction was lower than usual, but only slightly so."

ASB senior rural economist Nathan Penny said the impact of the coronavirus on dairy markets was starting to run its course and the price impact had been modest.

"Chinese buyers remain active, albeit cautious, on the auction platform," he said.

"These signs remain consistent with our central view that the coronavirus impact on dairy prices will prove modest and short-lived."

Mr Penny said key NZ dairy regions were very dry, and an official drought had been declared in Northland.

"A declaration for the Waikato and other regions may not be far away," he said.

Westpac has trimmed its 2019/20 production growth forecast for NZ to 0.5pc down on 2018/19.

"This crimping of production and NZ supply will lift dairy prices as soon as next month in our view," he said.

Mr Speizer said persistently dry conditions in NZ's North Island and eastern South Island could see milk production fall short of what the market was expecting.

Westpac has cut its NZ farmgate milk price forecast for this season from $NZ7.40 a kilogram milk solids to $7.20/kg MS, reflecting the virus's impact to date on world dairy prices.

However, it retains its forecast of $7.30/kg MS for the following season, based on a gradual recovery in prices in the coming months.

ASB cut its forecast price for 2019/20 from $NZ7.50/kg to $NZ7.40/kg.

"However, we acknowledge there are many moving parts to dairy markets currently and our forecast may require further tweaks over the coming months," Mr Penny said.

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