With prices down some 15 percent in the second quarter and early in the third quarter, global appetite for dairy products looks to be heating up again. In Fonterra’s Sep. 7 Global Dairy Trade auction, pricing surged a whopping 4 percent, with all product categories registering strong gains as just over 25,000 MT of ingredients changed hands.

The notable winners were skim milk powder and lactose prices, up 7.3 percent and 6.4 percent, respectively. However, all products rose at least 3 percent during the event. Skim milk powder (known as nonfat dry milk in the U.S.) climbed to $3,274 per MT, about $1.485 per lb. The freight market is now the main issue as rates for containers have surged in the past twelve months and availability is also a concern. With domestic prices ranging from $1.25 to 1.30 per lb, American product could compete for Far East demand—assuming exporters have access to empty containers and the trans-Pacific freight remains below $7,500 per 20-foot container.

New Zealand’s spring is off to a decent start, with adequate rains and pasture in good shape across both the North and South Islands. For Australia, after persistent drought conditions and fires, conditions now seem mostly favorable. Southeast Queensland may be the exception, though this is more problematic for sugarcane growers than for dairy operations.

The bigger question now is how an economic recovery and demand for dairy products will shape up as the Southern Hemisphere flush gets underway. Uncertainty over demand, made more challenging by Delta-variant COVID-19 cases and accelerating freight markets, will likely keep demand in check. As a result, we think upside potential for these markets will be more contained than in prior dairy bull cycles.

Drought in the western U.S. during its ebb period will limit how much suppliers can respond to demand and stock-building from China and elsewhere in Asia. Those fundamentals should keep a firm basis for our domestic markets.

SPI (Standard Precipitation Index) Aug. 11 through Sep. 10, 2021

Source: New Zealand National Institute of Weather and Atmosphere (NIWA)
Posted by: Information Services
Our Information Services team assists our clients with understanding commodity and ingredient market dynamics. Using our extensive database of intelligence, we also produce regular commodity and commercial market publications covering supply and demand fundamentals, news alerts on events that shape the markets, and resource guides to give you a complete picture of the industries we monitor.