The AgriHQ Monthly Dairy report released today suggests the lift in dairy commodity prices in December has not made an impact on the prevailing market conditions, which remain fragile.
Stocks of dairy products, among both buyers and sellers, continue to be a blockage to higher prices.
“The majority of buyers are relatively well covered as they have rebuilt stock while prices have been low.
“At present there is little urgency from many of these buyers to secure additional supplies. “At the same time we are seeing stocks building in both Europe and the United States,” AgriHQ senior dairy analyst Susan Kilsby said.
European milk production continues to grow, with October 2015 production up 3% on October 2014.
This is in line with September 2015 production, at just over 12 million tonnes.
Contrary to NZ’s falling supply (AgriHQ Milk Production forecast is for a 3% reduction on last season) Ireland produced 100t more than in October 2014 (+24.5%).
Milk production in the Netherlands increased 11.4%. Belgium is producing more (up 6.7%) as is Denmark (+6.6%).
Incentives to keep producing in Europe have been a legacy of planning for an industry without quotas.
“The milk prices being paid by European processors for contracted milk have been kept relatively high in order to grow their farmer base.
“Many companies have excess capacity due to making large investments in additional processing capacity ahead of the removal of quotas,” Kilsby said.
There is some optimism NZ could be better positioned to capitalise on an eventual market correction.
“Stocks have largely normalised in China but this is yet to be reflected in stronger demand for imported product.
The whole milk powder market has the potential to recover much more quickly than the skim milk powder market because of milk production in NZ slowing and the expectation that China will re-enter this market more strongly in 2016,” Kilsby said.
Meanwhile, farmgate pressures continue to mount in NZ.
Fonterra’s milk price forecast sits 15% below the average breakeven figure assessed by DairyNZ.
That has encouraged farmers to cull stock earlier than usual to generate revenue and reduce their dependence on supplementary feed.
