In a further sign of the improving returns in global dairy markets, New Zealand dairy processor Synlait has increased its farmgate milk price forecast to $6/kg (30c/litre). This latest increase comes just days after Fonterra also lifted its forecast milk price to 30c/litre.

The rising milk price in New Zealand is a response to falloff in milk collections from farmers this season. In October, the month of peak milk supply in New Zealand, Fonterra’s milk collections were down 8.3% compared with last year.

However, while the tightening supply situation in New Zealand indicates that dairy prices should increase further, some worrying signs have developed on the demand side of the market.

China is the world’s largest importer of milk powders and the country has shown renewed appetite for imports in the first half of 2016. However, import figures for September and October suggest demand for milk powders is waning as we turn into the back end of the year.

In September, Chinese imports of whole milk powder (WMP) slumped by almost half to just over 7,200t, while skimmed milk powder imports also halved to 9,170t.

In October, WMP imports continued their decline, with shipments down 11% year-on-year to less than 10,500t.

The one bright spot continues to be Chinese demand for imported infant formula.

In October, imports increased by almost a third to 19,000t, bringing total infant formula imports to 175,000t for the first 10 months of 2016, a 27% increase compared with last year.