How important is China to the global dairy market?
It looks no accident that the slump of 26% in five months in dairy values, as measured by the GlobalDairyTrade headline price, has coincided with a period of Chinese economic fragility.
Hamstrung by Covid restrictions, China’s economy expanded by only 0.4% year on year in the April-to-June quarter, and what statistics are available for July have hardly suggested that recovery is in train.
China exposure
Indeed, the more dependent a dairy commodity has been on Chinese custom, the worse it has fared.
Prices of whole milk powder – which relies on China for 62% of world imports, according to US Department of Agriculture estimates for 2022 – have fallen by 28.2% from the March high.
By contrast, prices of cheddar, of which China is a far smaller buyer, have fallen by a more modest 21.7%. (China is responsible for only 7.4% of world imports of cheese overall.)
Meanwhile, prices of butter, a dairy commodity of which China has a 23.6% share of global imports, have performed in-between. That is, dropping by 26.6% at GlobalDairyTrade (GDT).
Powder exception
If that appears to prove China’s importance to dairy markets, there is a fly in the yoghurt.
Prices of skim milk powder have proved relatively resilient, dipping by 21.4% since May, despite China being responsible for nearly-one quarter of world imports, ie in line with the butter figure.
This anomaly underlines what looks like a supply issue too, with skim milk powder (SMP) on the front line for production cuts in the top two exporters, the US and EU, thanks to some milk output disappointment.
US skim milk powder output fell by 11% in the January-to-May period, and exports by 9%. EU production fell by 4.7%, and shipments by a whopping 21%.
Against that backdrop, it is not such a surprise that skim milk powder prices have been performing less badly, even gaining a rare premium over whole milk powder – which returned at Tuesday’s auction, after a two-week break.
| Dairy price moves at GlobalDairyTrade since March 1 high, and exposure to China |
|||
| Contract | Price change |
Chinese imports, as share of world total |
China’s rank, among total world importers |
| Skim milk powder | -21.4% | 24.0% | 1 |
| Cheddar | -21.7% | 7.4%* | 5* |
| Butter | -26.6% | 23.6% | 1 |
| Whole milk powder | -61.8% | 61.8% | 1 |
| Sources: GlobalDairyTrade, GrainPriceNews, US Department of Agriculture. *= for cheese overall |
|||
