Next week's GDT auction is pointing to more weakness in dairy prices as the effects of the coronavirus outbreak in China weigh on the market. Photo / NZ Herald
Next week's GDT auction is pointing to more weakness in dairy prices as the effects of the coronavirus outbreak in China weigh on the market. Photo / NZ Herald
The futures market is once again pointing to more price falls at next week's Global Dairy Trade (GDT) auction, but drought throughout much of the country may act to partly offset the decline.
The price of wholemilk powder - which has the greatest bearing on Fonterra's farmgate milk price -dropped by 6.2 per cent at the last auction on February 5 to US$3039 a tonne after the extent of the coronavirus outbreak in China became more evident.
By comparison March, April and May futures contracts for wholemilk powder all traded today at just under US$3000 a tonne.
"It's looking like another weak auction," Nigel Brunel, director of institutional commodities at OM Financial, said.
New Zealand primary produce exporters are faced with the dual problems of falling consumption in China, as people stop going to restaurants, and the practical issues of moving product through the supply chains as ports and distribution centres struggle to get up and running after the prolonged Chinese New Year break.
"What's countering the fall in GDT prices is the fact that New Zealand is brown," Brunel said.
"It's not going to come back green any time soon and the rain is further and further away," he said.
"The likelihood of a poor end to the season will put upward pressure on prices," he said.
Nigel Brunel of OM Financial is expecting another weak global dairy auction.
ANZ agriculture economist Susan Kilsby expects to see a 2 to 3 per cent drop in prices at the auction.
"We are obviously in a situation where there is a lot of uncertainty and dairy will not be immune from that," she said.
"But I do think the dairy industry is going to come through this a bit better than some of the other sectors, who don't have such well-established supply chains and which have products with much shorter shelf lives," she said.
As drought conditions start to bite, ANZ predicts a 0.5 per cent fall in production this season.
"It is significant in that there is not a lot of milk available anywhere else to compensate for that," Kilsby said.
The combined effects of drought, the coronavirus outbreak and floods in the south of the South Island are wreaking havoc in the livestock industry.
Peter Moore, general manager livestock for PGG Wrightson, said the ewe kill was "largely non-existent" due to the sharp decline in demand from China.
"It's pretty tough out there for everyone in the livestock industry just trying to move stock through what would be a normal process. It's just not happening," Moore told NZME's The Country radio show. "It's gridlocked at the moment - there is nowhere to go."
But Moore said that, fundamentally, the international markets were still strong.
"We have got a drought, combined with coronavirus, which is slowing everything down. It's a very unusual situation.
"The China market has not stopped, but it's very slow getting product into that market," Moore said.
China is the biggest buyer of New Zealand red meat.
Partly offsetting price declines for primary producers has been the New Zealand dollar, which has dropped to US64.4c from US66c in late January.
The Government has declared a drought in Northland and parts of Auckland.
Barry McColl, Fonterra's general manager national transport and logistics, said the co-op was working with the Northland Regional Council to transport water from the Whangārei supply to Kaikohe and Kaitāia.
"At this stage it's around 90,000 litres or three tanker loads a day that we're building it into our milk collection runs," he said.
