The 40c lift Fonterra dairy farmers received last month has put the icing on the cake for what has been a great start to the season production-wise.
The latest data from the Dairy Companies Association of New Zealand showed production was up 1.6% on a tonnage basis and 1.8% on a milksolids basis in September compared to the same month a year ago.
For the season to date, NZ milk production was up 3% on a tonnage basis and 2.9% on a milksolids basis. The country’s production for the 12 months to July was up 0.1% and up 0.9% on a milksolids basis.Global analytics company Fitch Solutions forecasts a modest growth in New Zealand’s dairy production this season, while Rabobank senior dairy analyst Emma Higgins believes it could range between a flat growth to a modest 2% lift compared to last season.
“We are anticipating a new production record to be set for October, the peak month of milk collections – a culmination of the warmest winter on record and largely benign spring conditions,” she says in the bank’s latest dairy quarterly.
Fonterra chief executive Miles Hurrell says the stronger forecast had been largely driven by improved demand in China.
“Despite the initial impact of covid-19, we have seen demand for dairy in China recover quickly,” he says.
“In particular, demand for whole milk powder, which is a big driver of milk price, has been stronger than expected.”
Likewise, Fonterra’s head of commodity trading David McGowan told a recent NZX Global Dairy seminar that the dairy market outlook “remains really strong”.
He says while there have been disruptions, the market has moved through them “remarkably well”.
China, he says, will remain the “import powerhouse,” with dairy imports lifting 4% a year.
The most recent GDT events have backed this with demand out of North Asia for most commodities increasing over the past two auctions.
It prompted Westpac to lift its forecast from 6.50-$7/kg MS due to better than expected dairy demand.
“In particular, the Chinese economy has rebounded strongly post-covid. The Chinese economy is on track to post modest growth over 2020, the only major global economy likely to do so,” Westpac senior agri economist Nathan Penny says.
“In addition, economies in other key dairy markets in Asia are also faring better than expected.
“More broadly, New Zealand agricultural exports, including dairy, have proved more resilient than we expected earlier in the year.
“In this vein, we now expect global dairy prices to hold at or around current levels over the remainder of the season.”
Contrasting this mostly bullish outlook towards China is Rabobank’s report on Southeast Asia.
In it, RaboResearch senior dairy analyst Michael Harvey says dairy companies will be pushed towards dairy export opportunities into ASEAN-6 countries by rising geopolitical tensions and receding demand tailwinds in China.
He says while dairy trade has largely been immune so far, there has been a notable deterioration in trade relations, which has the potential to reverberate far and wide.
“Slowing Chinese dairy demand is a further factor which will prompt dairy exporters to look at markets outside China, with this expected to ease over the next decade as the rate of growth in per capita income slows,” Harvey says.
He says these factors would likely compel dairy exporters to reassess their export growth strategies and consider increased investment in the ASEAN-6 region.
“This is particularly relevant for New Zealand dairy companies who are more trade-exposed versus their peers and, consequently, have the highest level of market concentration risk,” he says.
Now was a good time for dairy companies to evaluate their portfolios to determine if they are overweight in China with over 35% of NZ dairy trade bound for China and less than 20% heading to Southeast Asia, he says.
Closer to home, all eyes will be turning to the sky over the next month to see if the weather Gods are kind as farmers hit peak milk and into early summer.
South Island farmers should be less affected by the forecasted La Nina pattern expected for summer thanks to their ability to irrigate. Its impact on North Island farmers could be both positive and negative.
While some parts of Waikato and Northland are already looking dry, La Nina could see widespread rain in the northern and eastern parts of that island keeping production ticking over nicely.
If other dairy producing areas turn dry, farmers still should have the cash to buy in feed thanks to the decent forecast.
Most have already planned for their summer. Anyone who has driven around Waikato in the past month would have seen contractors and farmers on their tractors getting feed crops sown and silage cut.
It also looks as if the concerns many had over labour shortages among contractors have largely been avoided, meaning there should be plenty of homegrown feed for autumn.
It’s been a great start to the season so far and a continuation of a great spring will top it off.
