September 19, 2013

New Zealand's milk production rebounds to record highs

At the time when US dairy producers emerge from drought, global milk prices are expected to ease marginally as milk production in New Zealand rebounds to record highs.

As the country emerges from the worst drought in 30 years, milk production in New Zealand is set to expand 4.5% before May 31, according to the New Zealand Ministry for Primary Industries.

New Zealand dairy farms suffered hot and dry conditions throughout 2012, which dried out pastures and caused milk production to drop for the first time in five years. The prices paid for milk and dairy products from Oceania to almost double over the year due to the scarcity in pasture. These prices are expected to fall, while rainfall has helped pastures recover ahead of milking season.

Fonterra Co-operative Group expects milk output to increase 5% this season, even after a botulism scare.

The rise in output comes as US dairy producers are expecting a 1.2% pick-up in production in 2014 as farms in the mid-west region emerge from drought. US dairy farmers have posted lower production levels for the past two milking seasons in the midst of the worst drought in 100 years. Dairy farms in Europe also faced unseasonal hot and dry conditions.

According to the USDA, global production is expected to rise 1.1% to a record 469.1 million tonnes in 2013, while production in the EU is expected to increase 1.3% to 154.4 million tonnes, according to the European Commission.

Pundits are predicting prices to ease accordingly, with futures dropping 12% by April 2014 to US$15.75 per 100 pounds, according to consensus estimates, but declines are likely to be significant.

Despite high-profile contamination scares in countries outside China, persistent fears over the safety of milk coming from within China mean milk imports in the world's largest economy are predicted to grow 26% in 2013, according to USDA estimates.

Milk traded at US$22.05 per 100 pounds on Tuesday (Sep 17), according to the US spot price in Chicago. Australian dairy farmers supplying Fonterra receive about US$6 a kilogramme for milk solids, about US$0.76 less than their New Zealand counterparts.

Fonterra New Zealand forecasts an end-of-season milk price of NZD7.80/kilogramme (US$6.55) for milk solids, owing to the different split of milk products in Australia between exports compared with New Zealand.