The main dairy cow culling season is due to commence – although good pasture covers mean the majority of dairy cows won’t be culled until closer to the end of the current milk production season.
Potential for other cost cutting measures will also be looked at more vigorously.
“Fewer dairy cows are expected to be wintered off main dairy farms,” NZX Agri head dairy analyst Susan Kilsby said.
Broader indicators of farm level prosperity have also shown weakening performances over the past four weeks.
The AgriHQ Dairy Index fell 93 points in February, driven by falling land prices. Lower milk price forecasts and depressed share prices in dairy companies have also contributed.
“Sales are occurring for good-quality farms that are priced attractively, however, poorer-quality farms in lesser locations have very limited demand.
“There has been an increase in the number of farms being listed. It is becoming a buyer’s market though many buyers are cautious and banks are becoming increasingly wary of extending finance,” Kilsby said.
The influence of rising European milk production on global prices is well-established.
However, the belief of many that milk production is already unsustainable and must fall back has been misread.
“Farmgate milk prices in many parts of Europe are not yet low enough to slow output.
“The volume of milk that has been produced in Europe has taken everyone by surprise,” Kilsby said.
The report identifies a potentially positive outcome for NZ from the prolonged growth in supply in Europe has been the detrimental impact on China’s dairy industry.
Low dairy commodity prices combined with high costs of production finally appear to be having an effect on China’s milk output.
Dairy farmers in China are finding it difficult to secure milk contracts, and the profitability of operating large-scale farms has declined sharply.
“We expect to see a correction in the volume of milk produced within China, which is likely to be replaced by imported dairy ingredients,” Kilsby said.
“A good lift in China’s import volumes was recorded in January but this was mainly driven by seasonal advantages associated with its free-trade agreement with NZ.”
To read the full report, click here.
