PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 19:36 UK, 3rd Dec 2013, by Agrimoney.com
China stockpiling boosts dairy price rally

Dairy prices at GlobalDairyTrade rose at their fastest since July, boosted by buying from China as a period of low-tariff imports from New Zealand, the top importing country, came into play in earnest.

A GlobalDairyTrade index rose 3.9% at Tuesday's event, its strongest since the July 16 auction, and despite a relatively high sales volume, of nearly 52,000 tonnes.

In fact, the high volume on offer may have been part of the appeal of the auction, given that Chinese buyers are clamouring to make purchases for 2014, and exploit a quota of New Zealand product allowed in every year at a preferential tariff rate.

For 2014, China's preferential import tariff rate is 4.2%, compared with a normal figure of 10%.

This year, Chinese imports had by the end of January exceeded the 71,000 tonnes allowed in under the quota.

Volume game

Tueday's auction "was the first chance Chinese buyers had to purchase big quantities for early 2014", Kyle Schrad, risk management associate at FCStone's dairy division, said.

Fonterra had planned to sell 22,500 tonnes of whole milk powder - which forms the bulk of volumes sold - for January and February delivery, beating the record of 20,500 tonnes set a year ago.

The result "is reaffirmation that these guys really are purchasing", Mr Schrad said

The data follow two days after official trade data showed New Zealand exporting a record 86,405 tonnes of whole milk powder to China in October.

This represented more than 60% of New Zealand's total whole milk powder exports for the month.

NZ vs Aus

China's hunger for dairy imports reflects in part a poor season for domestic production, but also the spread of bottle feeding for babies, as mothers increasingly go out to work, and with foreign products typically gaining a premium, following scares over the quality of domestic supplies.

While New Zealand production has proved strong, the boost to supplies has been offset in part by weak output in Australia, which fell 4.9% in October, taking the decline in 2013-14 to 4.1%.

In fact, there has also been "a little bit of chatter about dryness" in New Zealand, Mr Schrad said.

The southern hemisphere producing countries are still in a high period of output, if past the peak typically seen around October, while northern hemisphere producers are amid a period of low winter volumes.

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