Global Dairy Trade: Global milk price falls through the floor

International dairy trade overnight fell to its lowest point in years — and market watchers say more pain is on the way.

China’s dramatic dairy diet has caused international trade figures to fall to levels last seen during the milk market’s 2016 meltdown.

Overnight, the Global Dairy Index fell for a seventh straight trading session — but this time the plunge was particularly pointed with a 7.4 per cut to the headline figure.

The $US2875 ($A4452) per tonne average represents a 40 per cent decline from dizzying heights of March 2022, when the headline figure was soaring at US$5039 ($A7804).

Whole milk powder prices led the commodity losses overnight, down 10.9 per cent to $US2548 ($3946) per tonne.

JMI Wealth director Andrew Kelleher said the huge drop in the whole milk powder index was of particular concern for farmgate futures.

“It’s not pretty. There’s no point trying to gild the lily,” Mr Kelleher told Newstalk ZB.

“You have to go back to 2018 to find that sort of (GDT) numbers, but we only went their very briefly (in 2018), otherwise you have to look at 2016 to find the index at these levels.

“The real issue is: How long prices stay this low?

“You’ve seen the fall in the forecast farmgate milk prices (in NZ), down a dollar. You don’t want to see this extended or further weakness from here.”

China’s weak economy is weighing down international dairy trade. Picture: Zoe Phillips

Australia has become far less exposed to the instability of international dairy trade since the introduction of the mandatory dairy code of conduct in July 2020.

The code was introduced in the wake of the 2016 clawback by Fonterra Australia and now defunct processor Murray Goulburn.

However, eastAUSmilk says Australian dairy farmers are not immune from the international downturn with New Zealand needing to off-load surplus produce.

Last month, eastAUSmilk president Matt Trace warned fresh milk from New Zealand could appear on Australian supermarket shelves for the first time.

Westpac chief economist Kelly Eckhold said China’s economic recovery from the coronavirus pandemic era was far weaker than anticipated.

He said dairy wasn’t the only sector set to feel the pinch, with all agricultural commodities likely to be hurt by the Chinese downturn.

“Of particular significance has been ongoing weakness in China’s recovery and the related

substantial downgrade to the outlook for commodity export prices — dairy, meat, logs for example — which will lower farm and business incomes,” Mr Eckhold said.