Volatility sign
April 1, 2016

New Zealand Credit Rating Company Bearish on Milk Price Recovery

 |  By: Anna-Lisa Laca

Fonterra, New Zealand’s largest dairy exporter, says it’s optimistic about milk prices recovering this calendar year. Not everyone agrees, including Fitch Ratings (Fitch), a credit rating company in New Zealand. Fitch released a statement today that says its data indicates milk price recovery will be delayed in the “medium term”.

“This has been compounded by weak demand growth globally, mainly due to subdued Chinese demand and a Russian embargo on major Western dairy exporters,” Fitch officials say.

GlobalDairyTrade auction prices have continued to decline since the end of 2014. According to Fitch, the average GlobalDairyTrade price fell by around 38% in 2015 and have since continued to decline.

“Changes in regulation, geo-political factors and global demand patterns since 2014 have created an imbalance in global demand and supply of milk,” they say. “Longer term, we believe the fundamentals of dairy demand remain strong. The removal of milk production quotas in Europe is the main reason milk supply has been slow to decrease.”

Fitch says the declining demand from China and the ban on Western dairy products in Russia has added to market volatility.

“Chinese demand for whole milk powder declined by 47% in the 12 months to October 2015, which was a major contributor to the 8% decline in overall Chinese dairy import demand,” the release states. “The embargo on Western milk imports to Russia resulted in a 75% decline in imports over the same period. The embargo has now been extended until August 2016.”