The markets regularly surprise us. Weather events are often the catalyst for sharp price movements.
El Nino is now present, however the link between El Nino and NZ milk production is not precise. Many factors affect weather in NZ – El Nino is just one of these.
Elsewhere in the world the link between El Nino and optimal conditions for milk production are more pronounced.
Should an El Nino result, then feed prices in China may rise considerably. The dairy industry in China is already suffering from low milk prices. Producing milk in China is expensive.
At today’s commodity prices it doesn’t make a lot of sense to expand production in China. But investments in dairy are long-term decisions and the long-term outlook for dairy commodities is a lot better than where we are today.
Farm profits are falling in China. Some large-scale farms have issued profit warnings. Demand for imported dairy cows has fallen. Anecdotal evidence points to a slow down in production.
China’s dairy industry is calling for more government support. It is unclear at this point if the government perceives the dairy industry to be of critical importance to the country, or just nice to have. Even with strong government support it would be a challenge for China to become self sufficient in dairy.
This is what some advocates think needs to happen in China.
I think it is unlikely that China will go down this track but it would certainly be a concern to global markets if they chose to.
May import data for China reveals little change in purchasing patterns. China has halved the volume of whole milk powder it has brought from NZ this year. Skim milk powder imports are down 30%.
- Susan Kilsby writes the AgriHQ Monthly Dairy report.
