“It’s a reflection of a combination of their economy and the fact that they are relying more on their self-sufficiency for milk products.
“The Chinese have definitely grown their capacity to produce more milk and manufacture more milk product.
“Because the Chinese economy has not fully recovered, it is better for them to buy cheaper local product than more expensive foreign product.”
After the auction, NZX cut its milk price forecast for the 2024/25 season to $8.55/kg of milksolids from $8.77/kg previously.
Alvarado said July is often a soft month for prices as it is near the start of the season, which normally hits peak production around October.
There were bearish factors at play ahead of the auction, with greater product availability, perceived market uncertainty reported by traders and pricing drops anticipated on the SGX-NZX Derivatives market across Fonterra’s main reference products, NZX dairy analyst Rosalind Crickett said.
Despite the lower prices, on this occasion 85.7% of product was cleared of the 28,175 tonnes.
Milk powders saw significant price decreases continuing the downward trajectory seen at the interim “Pulse” auction last week.
Whole milk powder prices - which have the biggest influence over Fonterra’s milk price forecasts - dropped 4.3% to settle at an average price of US$3218/tonne.
Skim milk powder - ranked second - was also down a hefty 6.1% to US$2586/tonne, all but retracing the gains seen on the platform since May.
Anhydrous milk fat, a key ingredient in the manufacture of ice cream and chocolate, dropped by 10.7% to US$6517/tonne after a strong run over the past 12 months.
Butter prices plunged 10.2 per cent to US$6546/tonne.
Cheddar - which does not feature in Fonterra’s reckoning in formulating its milk price forecast, also declined - 6.9% to US$3980/tonne.
Fonterra’s opening forecast farmgate milk price for the 2024/25 season is $7.25-$8.75 per kg of milksolids, with a mid-point of $8.00 per kg.
In its latest update, the co-op said its New Zealand collections for the season ended May 31 were 1470.9 million kgMS, 0.6% below last season.
Last month, DairyNZ’s economic survey for the season 2022/23 showed that dairy farmers, like others in New Zealand, have been battling with inflation, with the report showing an ongoing change in the make-up of expenses and the impact this has had on dairy farm businesses.
DairyNZ said the combination of a reduced milk price and increased on-farm costs compared to the previous season saw the 2022/23 operating profit drop to $2.57 per kg of milksolids per kg), down from $3.46 per kg in 2021/22.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
