June 14, 2011

 

New Zealand's milk output increases by 50%

 

 

Milk output in New Zealand, the world's top exporter, will increase by half as much as had been perceived this year after farmers, whose earnings did not meet their expectations spent less in expanding their herd than had been expected.

 

USDA attaches in Wellington cut by 600,000 tonnes to 18.05 million tonnes in their forecast for New Zealand's milk output this year.

 

While still enough to claim the record, the downgrade, combined with an upgrade to last year's production following a favourable end to the season, slashed to 876,000 tonnes, from 1.75 million tonnes, the uplift expected in 2011.

 

"The actual increase in cow numbers is not as high as originally expected," the attaches said, cutting their estimate for the 2011 herd by 50,000 head to 4.8 million animals.

 

The dearth of animals looked set to limit output growth into 2012 too, with anecdotal reports suggest that there are more cows than average that are not in calf, which could have a negative impact on production next season.

 

While the attaches gave no explanation for farmers' reluctance to expand their herds, the revision comes amid waning estimates for dairy sector profitability last year.

 

Although milk prices have remained high by historical standards, they fell back last year from earlier peaks, prompting New Zealand officials to trim by NZD0.19/kg (US$0.16) of milk solids, to NZD6.16/kg (US$5.04) of milk solids, their forecast for farm revenues.

 

Meanwhile, costs have remained higher than had been expected, after poor northern hemisphere supported grain prices, while a modest lift to interest rates has inflated debt servicing costs.

 

New Zealand farmers, which had been expected last year to reverse fully a 2009 loss of NZD0.91/kg (US$0.74) of milk solids, were now expected to have recouped only NZD0.35/kg (US$0.29) of milk solids.

 

However, prospects for 2011 looked significantly better, with net profit expected at NZD1.49/kg (US$1.22) of milk solids.

 

The sector's overall returns were being underpinned by a shift by processors to producing wholemilk powder, which tends to be more profitable than the other dairy commodities, the USDA attaches said.

 

The attaches lifted by 13% to 1.02 million tonnes their forecast for New Zealand's whole milk powder output in 2011, largely at the expense of cheese output.

 

New Zealand's whole milk powder production looks set for long-term increases, with Fonterra, the biggest co-operative, reportedly planning two projects, in Southland and mid-Caterbury, for increasing its capacity.