Last week’s GDT auction in New Zealand surprised many after the benchmark dairy index recorded a 1.4% decline, despite a number of signs pointing towards a third consecutive lift.

The reason behind the decline now appears to be a major drop-off in participation by Chinese buyers at the GDT.

In 2015, Chinese demand for dairy dried up significantly, with imports halving compared with the previous year.

This was one of the major factors attributed to the sharp fall in market prices at the back end of last year.

For the first three months of 2016, Chinese demand was resurgent, with dairy imports increasing almost 40% year-on-year to just under 630,000t.

The increased activity by China in the market sparked hopes that a recovery could be on the way in the second half of 2016.

Extremely weak

However, activity from Chinese buyers was extremely weak at the latest GDT auction.

Of the 20,600t of product sold, as little as 10% to 20% of this was bought by Chinese buyers. Demand in particular for SMP and WMP, the two most important products traded on the auction platform, was very low, with China buying less than 1,000t of both products on the day.

Added to this, dairy exports from New Zealand to China for the month of March are reported to have declined significantly year-on-year, although this is at the end of the production season in New Zealand.

Closer to home, Ornua’s PPI index has dropped for the 13th month in a row. Ornua announced a PPI for the month of April of 81.4, a 3.6% decline compared with March. This latest drop equates to a farmgate milk price of 22.7c/l including VAT.