Whole milk powder raises GDT, but what is China doing?

In the European Union, the second wave of corona that is raging in many Member States has has not yet led to major panic. The parties on the European dairy market are concerned, but last week they were still watching the cat out of the tree. This results in largely stable quotations for, for example, butter, cheese and skimmed milk powder. In New Zealand, the location of the GDT, the signals for an auction with an average rising dairy quotation were green.

Signals included the rising quotations for the most important dairy products on the NZX, the New Zealand futures market, and the increase in the expected milk price for this season by Fonterra. The cooperative dairy giant announced last week that it would increase the expectation of the so-called Farmgate milk price by more than 6% to $6,80 (NZ dollars) per kilo of milk solids.  

Higher Chinese purchasing desire
According to CEO Miles Hurrell, this increase in the first half of the current milk season is due to the growing demand from China for whole milk powder in particular. The Chinese purchasing desire is greater than expected, he indicates. As one of the few economic superpowers in the world, China claims to have the coronavirus under tight control.

Hurrell also delicately indicated that a price of $6,80 ultimately means that Fonterra pumps about $10 billion, almost €5,6 billion, into the New Zealand economy. However, the CEO issued a warning that the current price increase is not a guarantee for the future, pointing to the uncertainties in exchange rates, milk production in the EU and the US and the global impact of the corona pandemic. 

Milk powder takes the place
The question is how long the demand from China for whole milk powder will remain at the same level, especially in New Zealand. Analysts report that Chinese shopping appetite has diminished considerably in August and has fallen relatively sharply compared to the same month a year earlier. At Tuesday's GDT, whole milk powder prices remained stable with a minimal increase of 0,3% to $3.037 (US dollars) per tonne. After 2 price increases, a stabilization could now be a signal that whole milk powder is taking its place.

Other dairy products at least supported an upward average dairy price on the GDT of 0,4% to $3.159 per tonne, the third consecutive increase in this quotation. It should be noted that the traded volumes are approximately 9 to 10% lower than in the same period last year. Support came mainly from butter, which rose 3,3% to $3.678 per tonne. During the previous auction on October 6, the price of butter already rose by 8,4%. Cheddar also recorded a plus of 3% to $3.803 per tonne, probably also benefiting from the strong recovery of the cheddar market in North America. 

Downward correction skimmed milk powder
Not everything on the fat side recorded positively, milk fat (AMF) fell by 0,5% to $4.110 per tonne. Like whole milk powder, the price of skimmed milk powder also barely moved, but with a small downward correction of 0,2% to $2.851. Finally, lactose was the biggest decliner with 8% to $1.087. Although lactose is a small product group on the GDT, it is not unimportant. It is one of the variables on which Fonterra's Farmgate milk price is calculated, writes the New Zealand ASB Bank.