Dairy prices are poised to rise again at Tuesday’s GlobalDairyTrade auction, investors believe, amid growing concerns over New Zealand’s milk production, although with the event overshadowed by a Chinese holiday.

Prices of SGX NZX whole milk powder futures have held at levels above those achieved by their relative lots at the last GlobalDairyTrade (GDT) event, by 1-4%, depending on the contract.

With whole milk powder account for the majority of dairy traded at GDT, and futures in other products also showing headway, prices appear poised on Tuesday for a 1.8% gain, according to broker StoneX.

That would represent a third successive rise in the GDT index, and take it to its highest in three months.

New Zealand dip

Sentiment has been bolstered by last week’s data from industry group Dcanz showing milk output in the new season in key dairy exporter New Zealand getting off to its worst start in four years.

Production in August, the third month of 2022-23, fell by 4.9% year on year, leaving total output for the first quarter down by 4.2% from the same period of last year.

“Volatility in weather conditions caused declines in pastures, along with production challenges that suppressed milk output,” the US Department of Agriculture said.

More significantly, there is some talk of output remaining low into October, New Zealand’s seasonally strongest month for production, when volumes see the so-called “spring flush” as cows enjoy fresh pasture.

‘Unequivocally a poor start’

Nate Donnay, director dairy market insight at StoneX, said that “wet weather will likely keep production below year ago in September and possibly October as well.

“It is unequivocally a poor start to the season,” he said, although adding that “at this point, it is still hard to determine how much of the decline is being driven by the weather and how much of it might be driven by a decline in the number of farms/cows being milked”.

Among other key dairy exporters, milk production in the European Union came in down 0.5% year on year in the first seven months of 2022, the latest data available, with that in the US 0.3% down in the 12 months to August, with Australia’s lagging by 3.9% in the 12 months to July.

“While this year’s farmgate milk price for Australian milk producers peaked to the highest ever, workforce concerns, high input costs, and farm exits challenge farmers’ confidence,” the USDA said.

‘Interest is high’

Meanwhile, for demand, hopes have been buoyed by bumper New Zealand exports for August, up 42% year on year by volume, and 102% by value to a record top.

For Oceania whole milk powder, “interest is high in the open market,” the USDA said.

The region’s “exports are good, with active purchasing from North Asian buyers,” a proxy for purchasers from China, the top dairy importer.

‘Buyers will be on holiday’

However, China’s celebration this week of Golden Week holiday have raised some ideas of a break in this demand at Tuesday’s GDT.

“Some people would argue that we will see less buying by China on GDT because buyers will be on holiday,” Mr Donnay said.

He reported too “ongoing weakness in the Chinese market”, which “still doesn’t show any immediate signs of turning around” after setbacks attributed largely to the dents to demand from Covid lockdowns and slowing economic growth.

Mr Donnay forecast prices dipping by 0.9% at Tuesday’s GDT, reflecting the Chinese holiday and the seasonal increase in southern hemisphere milk output volumes, even if to a disappointing level so far.