China lockdown headwinds hit prices

Whole milk powder prices have fallen 18 per cent over the past four auctions

2022-05-12T07:00:00.0000000Z

2022-05-12T07:00:00.0000000Z

NZME

https://communitynews.co.nz/article/281883006932168

The Country

China’s Covid-19 lockdowns have driven Fonterra to trim its farmgate market price forecast and a rural lender says the PRC’s measures are set to have significant ramifications for New Zealand agribusiness. Fonterra has adjusted this season’s forecast farmgate milk price range to $9.10 to $9.50/ kg of milksolids from a previous forecast of $9.30 to $9.90/kg, reducing the midpoint of the range to $9.30 from $9.60. The change was due to events that have resulted in short-term impacts on global demand for dairy products — in particular, the Covid-19 lockdowns in China, the economic crisis in Sri Lanka and the RussiaUkraine war. “While the long-term outlook for dairy remains positive, and we expect global demand and supply to be more balanced over the rest of the year, we have seen these short-term impacts flow through into pricing on the Global Dairy Trade (GDT) platform,” CEO Miles Hurrell said. Dairy is New Zealand’s biggest export and China is its biggest customer for dairy, meat and logs. Whole milk powder (WMP) prices, a key driver of Fonterra’s milk price, have fallen 18 per cent over the past four GDT auctions. “As an exporter to 140 countries we deal with these kinds of global events all the time, but right now we’re seeing the impact of multiple events,” Hurrell said. “Coupled with inflationary pressures, it’s not surprising to see buyers being cautious.” Rural lending specialist Rabobank said strict lockdowns in many major cities in China were having flow-on impacts on trading partners, including New Zealand. The bank’s general manager for Australia and New Zealand, Stefan Vogel, said there are four specific impacts of the lockdowns that are set to have increasing ramifications for New Zealand agribusiness — disruptions to freight logistics, Chinese corn plantings, dairy demand and hog pricing. “The already-stressed global container logistics situation is becoming more complicated due to massive delays around the Shanghai port,” Vogel said in a Rabobank podcast. The dry container index, which tracks average prices paid for the transport of dry bulk materials across more than 20 international routes, increased fivefold through 2021 as a result of Covid lockdowns in various parts of the world. “While the index has since declined and is down 16 per cent since early March and 25 per cent down from the September 2021 highs, it looks likely that the massive ongoing Covid lockdowns in China will add to continued container logistics issues and keep container freight prices well above historic levels for 2022 and also likely to remain elevated well into 2023,” he said. The spread of the Omicron variant and China’s “dynamic zero-Covid” policy were also bringing strong headwinds to consumption in the country’s food service sector, Vogel said. This was playing out in reduced dairy demand. “Dairy demand in food service is slowing in China while, according to our calculations, dairy products in China produced from imported Oceania whole milk powder are now more expensive than those from locally produced dairy for the first time in eight years,” he said. “After a record-breaking 2021 in milk powder imports by China, the demand uncertainty from Covid restrictions is likely to dampen the dragon’s import appetite slightly in 2022.”

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