Global Dairy Trade: Unhappy new year as index takes tumble

After a stronger-than-expected 2022, international dairy trade is off to a weak start with China’s covid conundrum a factor.

International dairy trade has been hit with a contrary Christmas and an unhappy new year as prices took a tumble into 2023.

The latest Global Dairy Trade (GDT) session dropped 2.8 per cent, off the back of a previous 3.8 per cent fall a fortnight ago.

The butter milk powder category led the decline, falling by a whopping 12.9 per cent, while the anhydrous milk fat indicator was down five per cent.

An overall 6.6 per cent in the latest two trading sessions now has the headline price sitting at $US3365 ($A4942) per megatonne – a substantial decline from a March 2022 peak of $US4757 ($A7524).

The cut by nearly $A2000 per megatonne during the 2022 calendar year coincides with a weakened Chinese economy, with Chinese president Xi Jinping labelling the easing of covid restrictions as a “a new phase” in his New Years Day address.

Westpac acting chief economist Michael Gordon said the international dairy trading index was heavily influenced by China’s seesawing economic fortunes.

He said as restrictions eased across mainland China, prices paid for imported dairy produce was likely to rise with renewed consumer confidence, much like in the western world more than a year ago.

“With tight global dairy supply fully priced into the market, the dairy market is focused on Chinese Covid developments,” Mr Gordon said.

“On that front, there have been further easing of restrictions and this is the likely catalyst for the potential auction price strength.”

South Australian Dairyfarmers Association vice president Nick Brokenshire said both his state and Australia more broadly were less export-exposed than a decade ago.

“The international trade situation now takes a lot longer to shine through to the farmgate than it did, because supply is so tight across Australia,” he said.

“It may have an impact in four or six months, when prices are being looked at for 2023-24, but at the moment, the domestic market is pretty settled.”