New Zealand dairy farmers are forecast1 to receive another year of strong milk prices for the 2020/21 season, and they have China to thank. One of the top indicators for tracking Chinese dairy demand trends is the Global Dairy Trade (GDT) auction in New Zealand, which also helps set their internal milk price across large cooperatives, such as Fonterra. For the past four months, key global dairy commodity indices at the auction have been propelled higher by purchases from the North Asia region2, which is primarily represented by China. Into March, Chinese demand was so strong that the rest of the world has been priced out of the market as China outbids buyers from the Middle East, Southeast Asia and Africa.
The year 2020 was defined by the ongoing pandemic, which aided dairy imports to China given that the National Association of Health Industry and Enterprise Management, Chinese Nutrition Society, Dairy Association of China, and China Dairy Industry Association3 stated that milk and dairy products could be consumed as a form of combating disease by boosting immune health. As a result, dairy imports swelled to an all-time high, driven by a combination of massive fluid milk & cream imports, but also by the increase need for whey powder.
This trend for China to experience record fluid milk and whey imports highlights the fact that domestic milk prices had become too expensive4, and that African swine fever has forced a rebuilding of the hog herd5, which requires additional whey for feeding piglets. Germany was the top choice for fluid milk imports in 2020, representing 33% of market share6 (338,500 metric tonnes, +31% YoY), but notable gains were also reported from New Zealand (309,141 metric tonnes, +9% YoY), Poland (107,129 metric tonnes, +39% YoY) and Austria (32,835 metric tonnes, +118% YoY). For whey feed imports, the United States has been the primary region and accounted for 40% of total imports in 2020.
Although Germany and the US were the top suppliers on fluid milk and whey powder, New Zealand continues to be China’s biggest dairy trade partner but the country has limited opportunities for growth on milk production due to environmental restrictions and as a result, China has had to diversify their suppliers. Whole milk powder is the most significant product to clear New Zealand’s ports and into China but those volumes were down in 2020 as China also required a larger share of New Zealand’s fluid milk last year. Despite best efforts, New Zealand has had a difficult time keeping up with China’s powder demand needs, pushing China to bring in more powder from South America and Europe in 2020.6
China’s imports into 2021 were incredible for the first two months of the calendar year with whole milk powder, skim milk powder, cheese, whey products and fluid milk & cream achieving record highs for the January-February timeframe.6 China’s insatiable demand has translated into incredible price gains across most dairy commodities throughout March on the GDT platform2 based in New Zealand and it has staying power as food insecurity and tight milk powder inventories on a global scale persists. However, only China has the purchasing power to buy at current levels on the global auction. As a result, the Middle East, Africa and Southeast Asia have not been able to put up much of fight against Chinese buyers. At the last GDT event on 16 March 2021, North Asia accounted for 77% of market share, which is the highest since August 2013.2
While milk volumes are moving toward the yearly peak across the Northern Hemisphere, shipping issues complicate immediate availability7, contributing to the preference for New Zealand product. As a result, New Zealand milk prices are high and farmers will keep cows in milk for longer than usual to capitalize on the situation to meet global demand that is estimated to remain intact. While milk flows from the US and Europe will be notable, a world that is emerging from a pandemic could keep demand elevated and supplies tight into the second half of the year as well.
