Dairy prices may struggle to build on their recovery at GlobalDairyTrade, despite an easing by China, the top importer, in the anti-Covid restrictions which have dented demand hopes for a range of commodities.

Several Chinese cities over the weekend accelerated a retreat in its Covid control measures, following a series of protests, with Shanghai ditching a requirement for passengers on public transport to show PCR test results, and some infected citizens in some parts of Beijing allowed to quarantine at home rather than in special centres.

However, the shifts proved insufficient to cheer significantly agricultural commodity markets for which have been overshadowed by China’s tough anti-Covid stance, and its dent to consumer sentiment and economic growth.

China is the top consumer and importer of many agricultural commodities, including cotton and soybeans as well as many dairy products.

The Bcom ag subindex stood up 0.1% in early deals on Monday, but remains down 2.9% for December so far.

‘Extremely mixed pointers’

Among SGX NZX dairy futures, whole milk powder for December stood up 0.4% at $3,370 per tonne, with little trading in other products.

Dairy price levels – including for whole milk powder, which accounts for the majority of product traded at GlobalDairyTrade – imply limited scope for values rising further at the next auction, on Tuesday, to continue the revival seen at the previous event, on November 15.

“The price pointers to this [auction] are extremely mixed,” said BNZ, although adding that the bank “wouldn’t be surprised to see, on balance, a moderate lift” in GDT prices.

At StoneX, Nate Donnay, director dairy market insight, said that China’s recent rowbacks on Covid restrictions “should eventually help to boost dairy demand”, but added that “I think the impact is still a long way off.

“My guess is prices at the GDT event… will be down.”

He added that “it will be hard to sustain a rally for dairy without Chinese demand stabilising and I don’t think we’ve reached that point yet”.

Milk output recoveries

Stoking the caution in sentiment are signs of increasing milk output in the northern hemisphere, including the US which for October reported output up 1.2% year on year, backed by some recovery in the dairy herd, up by 31,000 head year on year at 9.42m head.

“The size of the US milk-cow herd isn’t likely to change much in the near term, but stagnation in cow numbers should add up to some growth in milk production in comparison to last year’s light volumes,” the California-based Milk Producers Council said.

In the European Union, milk collections in September, the latest month for which data are available, expanded by 0.5% year on year, narrowing to 0.4% the decline in volumes recorded for the first nine months of 2023, European Commission data show.

Meanwhile, in Great Britain, October milk production, at 1,040m litres, rose by 3.0% year on year to set a record for the month on data going back to 1998.

‘Aging farmers’

Such expansion has eased worries over a poor start to 2022-23 for milk volumes in New Zealand, a key exporter, where output in October, the peak production month, fell by 2.9% year on year to its lowest in six years.

Cumulative volumes are running 3.5% behind the year-ago pace, at a five-year low.

“Cold, wintry conditions in the first part of October contributed to a lower production peak this season,” said Fonterra, which processes the vast majority of New Zealand milk, and indeed provides most of the product sold through GDT.

The US Department of Agriculture reported a structural factors in the decline, saying that “in spite of record farmgate milk prices, declines in annual milk production have been prompted by dairy farmers who choose exit farming.

“Aging farmers, lifestyle choices, stricter greenhouse gas emissions, and water quality regulations are adding to the challenges the dairy industry must face, as factors that further pressure New Zealand’s farmers.”

The USDA said that its sources suggested that “ongoing competition for land use, along with other pressures, are expected to curb milk supply into the future”.