Chinese Demand Resurgence Fuels Global Dairy Price Surge
Source: DairyNews.today
Chinese buyers are making a strong comeback in global dairy markets, driving a significant rise in prices as they replenish depleted stockpiles. This resurgence follows two years of reduced imports, during which China’s domestic dairy production surged while demand softened.
However, the effects of this pullback are now becoming evident. Michael Gordon, senior economist at Westpac, observes that China’s current dairy inventories, particularly for milk powders, are markedly understocked.
“While China’s dairy industry faces an oversupply of liquid milk, much of it is being processed into powders for storage. Yet, their capacity to offset the shortfall in imports remains limited,” says Gordon.
For whole milk powder (WMP) specifically, China has few alternatives to bolster its supply. New Zealand, a dominant player in the global WMP market, has reduced its production in recent years due to declining Chinese demand. This has left Chinese buyers with little choice but to secure more WMP by redirecting it from other markets.
Recent trading patterns reflect this shift. North Asian buyers, primarily from China, accounted for a growing share of products sold at the Global Dairy Trade (GDT) auctions. At the latest GDT event, the overall price index jumped 1.9% to USD 4,089 per metric tonne, marking its highest level since July 2022. WMP prices rose even more sharply, up 3.25% to USD 3,826 per metric tonne.
Record Milk Price Forecast
Westpac has raised its milk price forecast for the current season to NZD 10 per kilogram of milk solids (kgMS), a record high if achieved. However, Gordon cautions that when adjusted for inflation, this price still falls short of historical peaks.
“It’s a strong price, but inflation-adjusted comparisons reveal four prior seasons with higher real returns. Additionally, those peaks were often followed by steep declines in subsequent seasons,” Gordon explains.
Farm operating costs have also climbed in recent years. DairyNZ estimates that the breakeven price for a typical dairy farm has risen to NZD 8.15/kgMS, compared to NZD 8.01 last season. Even so, a NZD 10/kgMS price would provide significant financial headroom for farmers.
“This price level could translate to NZD 3.5 billion in additional revenue for Fonterra suppliers alone, and NZD 4.5 billion across the broader sector,” says Gordon. “After accounting for increased costs, this could deliver NZD 4 billion in extra discretionary income for dairy farmers, equivalent to around 1% of New Zealand’s GDP.”
Global Supply Challenges Add to Price Pressure
Adding to the upward momentum in dairy prices are supply constraints in other major milk-producing regions, particularly Europe and the United States. These challenges, combined with China’s renewed appetite for imports, are expected to keep global dairy prices elevated in the near term.
While the surge in Chinese demand signals robust recovery, industry observers remain cautious, noting the cyclical nature of dairy markets and the potential for future volatility.
“While China’s dairy industry faces an oversupply of liquid milk, much of it is being processed into powders for storage. Yet, their capacity to offset the shortfall in imports remains limited,” says Gordon.
For whole milk powder (WMP) specifically, China has few alternatives to bolster its supply. New Zealand, a dominant player in the global WMP market, has reduced its production in recent years due to declining Chinese demand. This has left Chinese buyers with little choice but to secure more WMP by redirecting it from other markets.
Recent trading patterns reflect this shift. North Asian buyers, primarily from China, accounted for a growing share of products sold at the Global Dairy Trade (GDT) auctions. At the latest GDT event, the overall price index jumped 1.9% to USD 4,089 per metric tonne, marking its highest level since July 2022. WMP prices rose even more sharply, up 3.25% to USD 3,826 per metric tonne.
Record Milk Price Forecast
Westpac has raised its milk price forecast for the current season to NZD 10 per kilogram of milk solids (kgMS), a record high if achieved. However, Gordon cautions that when adjusted for inflation, this price still falls short of historical peaks.
“It’s a strong price, but inflation-adjusted comparisons reveal four prior seasons with higher real returns. Additionally, those peaks were often followed by steep declines in subsequent seasons,” Gordon explains.
Farm operating costs have also climbed in recent years. DairyNZ estimates that the breakeven price for a typical dairy farm has risen to NZD 8.15/kgMS, compared to NZD 8.01 last season. Even so, a NZD 10/kgMS price would provide significant financial headroom for farmers.
“This price level could translate to NZD 3.5 billion in additional revenue for Fonterra suppliers alone, and NZD 4.5 billion across the broader sector,” says Gordon. “After accounting for increased costs, this could deliver NZD 4 billion in extra discretionary income for dairy farmers, equivalent to around 1% of New Zealand’s GDP.”
Global Supply Challenges Add to Price Pressure
Adding to the upward momentum in dairy prices are supply constraints in other major milk-producing regions, particularly Europe and the United States. These challenges, combined with China’s renewed appetite for imports, are expected to keep global dairy prices elevated in the near term.
While the surge in Chinese demand signals robust recovery, industry observers remain cautious, noting the cyclical nature of dairy markets and the potential for future volatility.
