Global dairy prices are coming off record highs as demand from China has fallen away, hit by a new wave of COVID-19 and lockdowns in several cities, including the financial capital of Shanghai.
Supplies of milk worldwide have tightened after a combination of dry weather in New Zealand, rains in Australia and war in Ukraine pushed up feed costs for producers, particularly in Europe and the United States.
The Global Dairy Trade price index fell 1% overnight, adding to a drop of 0.9% in the prior auction in mid-March. The index had hit a record high in the 1 March auction.
Data from the recent auction showed a significant drop in Chinese buyers, said Stuart Davison, dairy insights manager at NZX Ltd., which he attributed to anti-COVID lockdowns that made it tougher to buy dairy products.
"It's very hard to determine if the demand will pick up while the lockdowns are in place, and those restrictions impact their consumption," Davison added.
Increased Local Production
The consumption fall had led to increased local production of whole milk powder, reducing demand for New Zealand products, he added.
Lockdowns in Shanghai, China's most populous city with 26 million people, and the northeastern province of Jilin have weighed on commodities in recent weeks including oil.
The products mainly affected by the fall are those China usually buys, such as whole milk powder and butter.
Analysts say it is hard to tell if or when Chinese demand will pick up.
"Buyers (who, after all, have their ear close to the ground) aren't expecting the current whole milk powder glut to last," said ASB Bank economist Nat Keall said in a note.
This was despite the difficulty of predicting COVID-19's path in China or how tough the public health response might be, he added.