October 15, 2024

 

New Zealand dairy industry sees strong growth amid global supply challenges

New Zealand's dairy sector saw a record year-on-year (YoY) increase in August milk production, robust pricing for skim milk powder (SMP) and whole milk powder (WMP) on the Global Dairy Trade (GDT) platform, and Fonterra's announcement of its second-largest dividend pay-out in the company's history, Farmers Weekly reported.

 

New Zealand's milk production in August rose by 10.0% YoY, reaching a total of 123.8 million kg of milk solids. This marks the highest August production figure since 2020, driven by favourable weather conditions and strong pasture growth across key regions.

 

The season-to-date production now stands 8.3% higher than last year, demonstrating a strong start to the dairy season. In terms of tonnage, milk production increased by 9.0% YoY, with 1.42 million tonnes of milk produced, again the highest for August since 2020.

 

Meanwhile, milk production in other major dairy-producing regions has been constrained. In August, the US recorded a YoY decline of -0.2%, Argentina saw a sharp drop of -4.0%, and Uruguay fell by -5.5%. Europe reported only a modest 0.4% increase in July milk production. Challenges such as avian flu outbreaks and limited availability of heifers have impacted the US, while Europe contends with rising cases of the blue-tongue virus and unfavourable weather conditions.

 

These supply disruptions in key regions are likely to influence global dairy prices, with potential implications for the broader market.

 

Global Dairy Trade events during September showed mixed results. Event 363 saw a slight dip of 0.4% in the GDT index, while Event 364 rebounded with a 0.8% increase. Notable price gains were seen for SMP, cheddar, and mozzarella. SMP prices hit their highest average on the GDT platform in the past 12 months at US$2,809 per tonne, driven by a surge in demand from north Asia, particularly China, as buyers replenished their stock.

 

October began on a positive note with GDT Event 365, where the overall index rose by 1.2%. WMP prices reached their highest average on the platform since October 2022, at US$3,559 per tonne, suggesting price stabilisation. This could provide reassurance to farmers if demand remains steady as the season progresses.

 

On the trade front, New Zealand's total dairy exports declined by 13.8% YoY in August, largely due to a seasonal slowdown in exports. However, year-to-date (YTD) exports remain up by 0.7%. The decrease in August exports was expected, following Fonterra's strategy to reduce inventories at the end of its financial year. This is a common approach to avoid carrying excess stock into the new season.

 

In contrast, other dairy-producing regions reported stronger export growth. Argentina's August exports rose by 10.9%, while the US, Europe, and Australia saw increases in July exports of 7.8%, 4.2%, and 20.2%, respectively.

 

For many New Zealand farmers, positive news came from Fonterra in late September. The co-operative raised its Farmgate Milk Price forecast for the 2024/25 season by NZD 0.50 (US$0.30), bringing it to a midpoint of NZD 9.00 (US$5.48) per kg of milk solids. This forecast aligns with the NZX milk price calculator's predictions.

 

Additionally, Fonterra announced an NZD 0.55 (US$0.33) dividend pay-out for the 2023/24 season, marking the second-largest dividend in the co-operative's history, surpassed only by the NZD 0.59 (US$0.36) pay-out in 2007.

 

Overall, the outlook for New Zealand's dairy sector remains optimistic. A strong start to milk production, combined with firm GDT prices, points to a positive season ahead. Attention will need to be paid to global demand, particularly as China implements new economic stimulus measures that could drive dairy imports.

 

New Zealand is also well-positioned to maintain strong export demand in the coming months, especially considering butter supply constraints in Europe and production issues in other key regions.

 

-      Farmers Weekly