Whole milk powder is poised to lead a further dip in dairy prices at Tuesday’s GlobalDairyTrade auction, weighed by an increase in volumes for sale at a time when Covid is provoking fresh concerns over Chinese demand.

Many SGX NZX whole milk powder futures followed up the last session’s steep price falls with further declines on Monday.

The October contract, the best traded on the day, eased by 0.8% to $3,630 a tonne, and the November lot by 0.7% to $3,635 a tonne, both setting 10-month lows.

The declines expanded discounts to prices set by respective contracts at the last GlobalDairyTrade (GDT) auction, on July 5, suggesting steep falls in values at Tuesday’s event.

“We expect whole milk powder prices to drop by around 4% at the upcoming auction,” said Westpac – a fall which would take above 20% the fall in values from their March high, and enter bear market territory on commonly-held definitions.

‘Week-to-week uncertainty’

Westpac attributed its forecast in part to broad “pressure” on commodity markets, forecasting “global dairy prices to be similarly impacted”.

However, an increase by Fonterra, the New Zealand-based dairy giant which sells most of the product marketed through GDT, in the amount of whole milk powder (WMP) it is putting through the auction has also undermined sentiment.

The co-operative raised by 10,000 tonnes the volume of whole milk powder it is selling through GDT in the July-to-September period, including 1,000 tonnes extra at Tuesday’s event, saying the increase was “the result of movements in market demand”.

Nate Donnay, director dairy market insight at StoneX, said that is was uncertain whether Fonterra’s comment reflected disappointing demand for whole milk powder outside GDT, or strong demand for the product, prompting the co-operative to place “more of it on the auction for buyers to compete for”.

However, he added that “my feeling is demand is down and the volume has been bumped higher to push prices low enough to find more interest”.

The USDA earlier this month reported that “there is week-to-week uncertainty” in New Zealand’s whole milk powder market.

‘Market will stay heavy’

Investors are also concerned over the strength of demand for dairy from China, the top importer, which is imposing some fresh curbs on movement after new Covid cases on Sunday reached 580, the most since late May.

Tianjin, a city of 16m residents close to Beijing, was on Monday reported to have introduced temporary restrictions on movement while it conducts mass testing.

“Covid cases are trending higher again,” Mr Donnay said, noting that last week “three smaller cities were under partial lockdown”.

While China’s farmgate milk price had ticked higher last week – in line with a seasonal pattern of values rebounding from a June low for the rest of the calendar year – “there is some expectation that the Chinese market will stay heavy into the third quarter and the normal seasonal rise in milk prices may be muted”.

‘Will support global prices’

However, Westpac was more upbeat seeing Chinese demand as proving ultimately resilient, at a time of modest prospects for production growth in major dairy exporters.

“Further out, we anticipate that very weak global supply combined with rebounding Chinese demand will support global dairy prices,” the bank said.

StoneX forecast the overall GDT index falling by 1.4% on Tuesday, implying a third successive negative auction, and a dip in prices to a nine-month low.