Global dairy prices fell on Tuesday night as concerns about the impact of the COVID-19 crisis hit.
But analysts are still uncertain about the market outlook with Chinese buyers again active in the auction, suggesting a strengthening of demand from that key market.
The Global Dairy Trade price index was down 4.2 per cent, led by a 3.9pc fall in the key whole milk powder price.
Skim milk powder (down 4.9pc), anhydrous milk fat (down 7.0pc) and butter (down 3.6pc) followed the market trend.
But there were some bright notes with cheddar prices up 1.9pc and lactose up 12pc.
New Zealand bank ASB senior rural economist Nathan Penny said the oil price plunge spilled over into dairy markets.
The result was weaker than market expectations and added to downside risks for 2020/21 milk prices, he said.
Westpac head of NZ strategy Imre Speizer said although the trend in prices this year was clearly negative, dairy commodities had easily outperformed major industrial commodities such as oil, copper, lumber and sugar.
Another positive was that North Asian buyer demand rebounded sharply in Tuesday night's auction.
"This is consistent with indications that economic activity in China has started to recover," he said.
"Middle Eastern demand, on the other hand, continues to be affected by the plunge in oil prices."
The bank expects global demand for dairy products to be hurt by country lockdowns.
"That should particularly be true for dairy ingredients (for example milk powder and butter) which go into processed foods, which in turn are sold via food and beverage outlets," he said.
Meantime, there was growing evidence of growth in production in Europe, the United States and South America, which would weigh on markets.
"Overall, the dominant theme in dairy markets remains one of waning global demand and rising global supply," he said.
"The implication is probable further downward pressure on world dairy prices."
Uncertainty continues
Fonterra earlier this week warned its suppliers that global economic uncertainty would continue to have an impact on markets.
"The global recession will impact people's purchasing power and that will be reflected in prices for all products and services," chairman John Monaghan said.
"The scale of the impact is impossible for economists to predict right now."
He warned farmers to be cautious with significant on-farm decisions, given the level of global uncertainty.
Mr Monaghan said China was key.
"That economy is slowly returning to a new normal," he said.
"We are starting to see key foodservice outlets such as Starbucks and McDonald's re-open their doors in China.
"While that's good news, there's a lot of recovery still needed in that market."
Australian/NZ infant formula maker A2 has experienced strong revenue growth since the COVID-19 crisis hit, but is still pointing to future uncertainty.
"This (the growth) primarily reflected the impact of changes in consumer purchase behaviour arising from the COVID-19 situation and included an increase in pantry stocking of our products, particularly via online and reseller channels," it said in a market briefing.
"We are unable to estimate the timing and extent to which pantry stocking may unwind."
It said the significant depreciation of the NZ dollar had also helped its performance.
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