April 3, 2013

 

 

Amid growing concerns over the dent to Australian and New Zealand milk output due to drought, world dairy prices jumped again to their highest at GlobalDairyTrade, led by a 27% leap in values of skim milk powder.

 

Prices at GlobalDairyTrade - the twice-a-month physical dairy product auction run by export giant Fonterra - rose 14.2% to their highest in 14 years, and comfortably surpassed the previous high reached in October 2007.

 

The result took the increase in GlobalDairyTrade prices so far in 2013 to 58%, and meant that values have doubled from a low reached last May. The surge was led this time by skim milk powder - prized in particular by China, which has little manufacturing capacity of its own - which price soared 27% from the last event on March 19, to top US$5,000 a tonne for the first time.

 

The jump in prices has been fuelled by worsening expectations for milk output in Australia and, in particular, New Zealand, the top dairy exporting nation, where overly dry weather has sapped pasture condition.

 

Australian milk production sank 9.2% in February, industry data last week showed, although adjusted for the extra day in the month in 2012, the decline was of a more modest 5.9%.

 

While data for New Zealand for the month has yet to be released, output is believed to have shown a sharp decline, after rising in January, on-year, for a 25th successive month.

 

Auckland-based Fonterra last week lowered its forecast for its change in milk collections over 2012-13from "up 1%" to flat , and this after strong rises earlier on in the season, before a drought billed as the worst in 40 years in many areas.

 

Nahan Guy, the New Zealand minister of primary industries, on Monday (Apr 1) warned of continued "challenges" from the drought, despite forecasts for "scattered rain over the next week".

 

Fonterra has curtailed the volumes of products on offer at GlobalDairyTrade, with whole milk powder volumes down to 5,000 tonnes, in a period when output is typically in seasonal decline in the southern hemisphere.

 

Many New Zealand dairy cows are being dried off for the winter until August, although farmers have hiked slaughter rates this time to avoid the elevated cost of feed. New Zealand cattle slaughter is running 77% ahead of rates last season, driven by dairy cow liquidation.

 

In the Australian state of Victoria, responsible for some two-thirds of national milk output, cattle slaughter is running 15% higher than a year ago.

 

Meanwhile, hopes of northern hemisphere output picking up the slack, as it approaches the typically strong "spring flush" period, have faded too, with forecasts of output falling on-year in Europe for now, hurt by elevated feed prices and cold weather which has restricted pasture growth across the north of the continent.

 

Deliveries in the UK, where weather has been particularly poor, fell by 8.2% to an average of 35.4 million litres per day in the two weeks to March 23, the latest data available.

 

However, there are signs of the higher dairy prices feeding their way through to producers who, with grain prices in sharp retreat since a US report on inventories last week, could in some areas see margins improved both by better receipts and lower feed costs.

 

FrieslandCampina, the Dutch co-operative, last week lifted its estimate of milk prices to farmers, while in the UK, Sainsbury unveiled a raise to the price it pays for milk, following an increase by supermarket chain Tesco.