Rising Chinese demand lifts outlook for dairy, bank says.

China has clearly returned in force to the market for dairy commodities, Westpac senior economist Michael Gordon says.

The lift in Chinese demand has boosted Global Dairy Trade prices and prompted Westpac to raise its farmgate milk price forecast from $9 to $10.

“Chinese buyers are facing a substantial challenge to rebuild their stocks of milk powders in particular.

“This is providing a boost to dairy prices in the near term, although we expect prices to fall back again once this process is complete.”

Gordon said his $10 forecast, if delivered, would be the highest nominal payout in history but not when inflation-adjusted.

In four previous years of very high milk prices the following season was not sustained, and in some cases there were sharply lower prices.

“Adjusting for general inflation also understates the degree to which on-farm costs have risen in recent years.

“The current DairyNZ break-even price of $8.15 would leave substantial room for farmers to spend and invest more, after catching up on maintenance and other deferred costs.”

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