While the global supply of dairy and meat products is expected to remain constrained, new global risks are now impacting demand.
" The greatest current risk to international prices is the coronavirus outbreak in China.”
Meat prices eased already late last year as China took its foot off the purchasing accelerator. This coincided with a lift in the volume of livestock being processed in New Zealand, resulting in a sharp drop in schedule prices. This drop has been further accentuated by the spread of the coronavirus, which has to date claimed more than a thousand lives.
The virus outbreak could not have come at a worse time as it coincided with Chinese New Year – a period of celebration with families feasting together. Foods are often gifted as well, making this a massive consumption period for luxury goods, which includes New Zealand fruits, meats and dairy products.
The virus outbreak curtailed travel and discouraged public outings, including reducing restaurant dining. Even home deliveries of food have decreased due to the perceived risk of delivery staff spreading the disease.
Travel restrictions and an extension to the official Chinese New Year holiday period also mean containers of produce are piling up on wharves in China., Chilled storage space is now at a premium within China and also here in New Zealand.
The New Zealand dollar (NZD) firmed over November and December but a large portion has since retraced. Volatility can be expected. A slightly higher NZD has resulted in a small downward revision to ANZ Research’s milk price forecasts.
Financial resilience at the farm business level is now a core focus and in many cases this is being strengthened by a greater focus on debt repayments. A close watch on costs on the part of dairy farmers is helping to build profit margins but is hindering the arable sector as demand for supplementary feed has decreased.
The greatest current risk to international dairy prices is the coronavirus outbreak. China is by far the largest importer of dairy products, so any change in demand from China directly influences prices – particularly the price of whole milk powder.
Milk price futures for this season and next have bounced along over the past couple of months before easing sharply in recent weeks as the seriousness of the coronavirus outbreak became apparent.
Open positions in next season’s contract have started to build as farmers mitigate future revenue risks. Dairy commodity prices are generally expected to remain above the long-run average so long as global supply remains constrained but this will depend how global demand holds up in the coming months. Milk production growth rates are modest in all of the main dairy-exporting nations, meaning there is not an abundance of surplus dairy products to export.