The oversupply of milk is primarily being driven by European farmers who continue to be willing to operate on thin margins.
The excess has been supplemented by the United States where production was up 0.6% year-on-year in November, and 0.7% in December.
The most alarming increase in production has been documented in Ireland, with a 48% increase in November compared with the same month in 2014. Volume growth was also evident in the Netherlands (+14%) and Germany (+5%).
The report notes some measures have been introduced to limit European production. Dutch dairy co-op FrieslandCampina is offering farmers an allowance of €2/100g if they do not exceed the average volume milk that they upped from December 13-27. FrieslandCampina has said it is at full capacity and can’t process any extra milk.
There are doubts this will have much effect on overall volumes.
“Farmgate milk prices in Europe continue to be sufficient to attract growth in milk supply from the more efficient milk producing nations," AgriHQ senior dairy analyst Susan Kilsby said.
“Overall milk production won’t slow while farmers in the north-west of Europe are still being paid more for their milk than global dairy commodity prices dictate they should.”
On the demand side, importers of dairy products are under very little pressure to complete purchases since most hold adequate stocks, and have no sense that prices are going to start increasing.
“Buyers currently have the luxury of shopping around for the best deal on offer. This is putting pressure on sellers to lower prices in order to achieve a sale,” Kilsby said.
The recent collapse of oil prices has also had an effect on global demand, with many of the oil producing nations being importers of large volumes of dairy products. This development has also created caution among exporters.
“No one wants to supply Venezuela, which was once NZ’s largest market for dairy products.
“NZ last exported milk powder to Venezuela in August, 2015. It now appears that Argentina and Uruguay, who took up the slack, are not willing to risk sending product,” Kilsby said.
Meanwhile, farmgate price revisions over the past week have added to the gloom for NZ farmers.
Fonterra cut its milk price to $4.15/kg MS yesterday, following downward revisions by Open Country and Westland Milk.
The AgriHQ Farmgate Milk Price for the 2015-16 season was revised down to $4.43/kg MS, 24c less than was forecast this time last month.
• To read the report in full click here.
