Dairy prices fall as weak demand outweighs tight supplies (updated)

CRA International

20/07/2022 06:08

(Adds background and economist comments)
    By Lucy Craymer
    July 20 (Reuters) - Global dairy prices are now trading at
10-month lows, as once resilient demand has fallen off,
particularly from China where widespread COVID-19 lockdowns are
taking a toll on the economy.
    The downward move comes even as milk supplies remain tight
worldwide due to dry weather in New Zealand, and as rains in
Australia and the war in Ukraine pushed up feed costs for dairy
farmers, particularly in Europe and the United States.
    The Global Dairy Trade price index fell 5% overnight, adding
to a drop of 4.1% in the prior auction in early July. The index
is now at its lowest level since the Sept. 7, 2021 auction.
    Data from the recent auction showed that North Asian buyers,
who tend to be largely from China, were buying, but in smaller
quantities than normal.
    "The recent weakness in the Chinese economy is a likely
catalyst for weaker global dairy demand," Westpac Senior Agri
Economist Nathan Penny said in a note.
    China's economic growth slowed sharply in the second
quarter, highlighting the colossal toll on activity from
widespread COVID lockdowns and pointing to persistent pressure
over coming months from a darkening global outlook.  urn:newsml:reuters.com:*:nL1N2YW02X
    Penny said Westpac expects China's economy to rebound over
the remainder of the year, which should lead to a recovery in
consumer spending and thus dairy demand.
    Analysts say tight supply fundamentals keep a floor under
the prices.
    Production in Europe remains exceedingly weak impacted by
the energy crisis, drought, rising input costs and other
unfavourable on-farm economic headwinds, ASB Bank economist Nat
Keall said in a note. 
    He said while New Zealand production might be better than
last year, it was unlikely to offset European weakness.
    "Suffice to say, we find it hard to see global dairy prices
losing too much ground in this sort of environment," he said.

 (Bangalore Commodities desk; Editing by Subhranshu Sahu)
 ((BLRCEEditorial@thomsonreuters.com))