Dairy Demand Hit by China Lockdowns

According to Stefan Vogel, Rabobank research general manager for Australia and New Zealand, Covid restrictions in China are likely to dampen milk powder imports into the country.

He noted that the spread of the Omicron variant and China's "dynamic zero-Covid" policy were also bringing strong headwinds to consumption in the country's foodservice sector and this was playing out in reduced dairy demand.

Current strict lockdowns in many major cities in China are not only affecting its local citizens, but also having flow-on impacts on trading partners, including New Zealand, including logistics, corn plantings and dairy demand.

"Dairy demand in food service is slowing in China while, according to our calculations, dairy products in China produced from imported Oceania whole milk powder (WMP) are now more expensive than those from locally-produced dairy for the first time in eight years," said Vogel.

It looks likely that the massive ongoing Covid lockdowns in China will add to continued container logistics issues and keep container freight prices well above historic levels for 2022 and also likely to remain elevated well into 2023.

Meanwhile in New Zealand, Rabobank is expecting a wide range of milk price forecasts for the coming season. In a recent report the bank noted that global dairy commodity prices present a mixed bag as demand weakens.

The report noted an overall drop in milk production of 2 percent against this time last season, but said the world-wide trend in milk production at present is 'underwhelming' and that this may benefit Kiwi production in the short term.

The report also noted that global vegetable oil prices are rising due to the Ukraine war and various protectionist moves such as Indonesia's ban on palm oil exports.