Fonterra Co-Operative Group Ltd., the world’s largest dairy exporter, said China’s recent steps to devalue its currency may lift demand for New Zealand dairy products and give depressed milk prices a boost.
Fonterra Chief Executive Theo Spierings said the weaker renminbi would help make China’s exports more competitive, which would likely help boost the nation’s economy and eventually prompt a recovery in its dairy imports.
“[It] leads to protection of jobs and protection of the purchasing power of the consumer, so these are good short-term measures,” Mr. Spierings said in an interview Tuesday. New Zealand exports around 90% of its milk, a big portion of which goes to China.
The People’s Bank of China rattled global markets last week after it allowed the renminbi, also known as the yuan, to weaken. The devaluation triggered sharp falls in other currencies, including the New Zealand dollar, though that has since risen on expectations milk prices will rise.
Global dairy prices are expected to rise in Tuesday night’s GlobalDairyTrade auction following 10 consecutive falls, with economists tipping price increases of as much as 15% after a jump in dairy futures.
Since the last auction on Aug. 4, Fonterra has substantially reduced the supply of whole-milk powder to the platform, while forecasting that dairy production in New Zealand would be at least 2% lower this season, which runs through May.
Mr. Spierings said he would interpret any move higher in the auction as a correction rather than the start of a recovery. In the last auction, prices fell to a 13-year low, and they remain about 60% below levels in February last year.
“Milk prices are unsustainably low and below the bottom,” Mr. Spierings said. “They could be bouncing back, but it’s more of a correction rather than showing strong demand in the sales channel.”
Mr. Spierings said any sustained recovery would have to be linked to greater demand from China, where slowing economic growth has hit demand for dairy and other imports. China is one of New Zealand’s biggest trading partners.
Source: Wall Street Journal