NZ milk output to fall at fastest since at least 1990s
Category: Dairy
(Agrimoney) – The drop in New Zealand production, whose waning prospects have been a big factor in reviving global prices, is to occur even faster than previously thought – at its steepest level since at least the 1990s.
Bank of New Zealand expanded to 6%, from 4%, the shrinkage it expects this season in milk production in New Zealand, the top exporting country.
The forecast comes two weeks after Fonterra, the country’s top milk processor, revised its forecast for the drop in milk output in 2015-16, which started in June, to 5%, from 2%.
Output has declined in three seasons so far this century, but never by more than 3%, BNZ data show.
The bank said its downgraded followed lower-than-expected milk output so far this season, in the lead up to this month, which typically marks the seasonal peak in production, the so-called “spring flush”, helped by strong pasture condition.
Weak volumes
“Fonterra has noted that its milk intake was down as much as 8% on a weekly basis through September,” BNZ said, citing dry conditions and the disincentive to producers provided by a milk price which set 13-year lows early in the season.
“Lower production to this point reflects a combination of poor winter and early spring weather, likely fewer cows in milk and low milk price.”
The El Nino, which has a history of causing dryness in some important eastern dairy areas, was raising a question mark over future production.
“Most variation in annual milk supply occurs in the second half of the season, during [southern hemisphere] summer and autumn.
“This is where the current El Nino conditions are most likely to dent production, if indeed they do to any great extent.”
‘Very strong bounce in prices’
The comments follow a sharp recovery in dairy prices, which are up 48% since early August at the GlobalDairyTrade auctions run by Fonterra, which itself last month raised from a 13-year low its forecast for milk prices to farmers this season.
“Expectations of lower New Zealand milk production are at least part of a very strong bounce in dairy prices over the past couple of months,” said BNZ.
The next GlobalDairyTrade auction is due on Tuesday.
The improved price prospects had potentially raised by NZ$2bn to New Zealand dairy revenue hopes, taking them above those for 2014-15.
However, the sum “would still be more than NZ$5bn down on that achieved two seasons ago and almost NZ$2bn shy of the average of the past five years,” the bank said.
