MARKET ANALYSIS

DAIRY MARKET: DELTA VARIANT THROWS A SPANNER IN THE WORKS

COVID is not going quietly, Senior Agri Economist of Westpac Nathan Penny in New Zealand says. The Delta variant has thrown a spanner in the works and financial and commodity markets have hit pause on the earlier optimism around vaccine rollouts and economic recovery. The latest Global Dairy Trade auction on 21 July has recorded another fall. There were eight drops in the last nine auctions. The overall prices dropped 2.9%, while whole milk powder (WMP) prices dipped 3.8%. Both overall and WMP prices have dropped by around 9% from their recent peaks. It is no surprise that dairy prices dropped at the auction, economist Penny emphasizes. “The earlier exuberance in share markets and key commodity markets has decidedly cooled.” But Penny marks a distinction between the falls of prices in the latest GDT auction and falls over recent months. “Price falls at previous auctions were due to the very strong end to the NZ dairy season. Production from March through May was up a whopping 10% on the same three months back in 2020.” We’ll be keeping a close eye on COVID and dairy demand developments over the coming weeks, with a particular focus on key dairy markets in Asia.” The renewed Covid concerns also superseded major changes by Fonterra to auction volumes on offer. Prior to the auction Fonterra reduced the WMP volumes on offer by 1,000 MT or 8% compared to its previous forecast, and an additional 19,500 MT or 14% in total over the next four months. “Normally, this volume reduction on the auction platform would have led to a temporary lift in prices,” Penny says. According to Josie Zilm, regional manager Agribusiness at Rural Bank in Australia, milk supply will continue to climb higher relative to last season in most Australian states, led by Tasmania and Victoria. “Supply will be driven by solid feed stocks heading into summer along with cheaper input costs for water and grain which will help to improve profitability.” Global dairy prices are likely to face downward pressure from increased milk supply, she says. “However, this will be partially offset by importers prioritising food security. Domestic demand is expected to shift from supermarket to foodservices in Victoria, increasing demand for premium products such as soft cheese and butter.”