Thursday, March 28, 2024

Milk production trends lift prices

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The eleventh straight rise in Global Dairy Trade prices has secured farmgate milk payouts for this season and lifted expectations of higher opening prices for next season.
The costs of some imported farm inputs have come off the boil in recent months but ‘farmers are likely to see sizeable increases in their operating costs over the coming years’, says senior agri economist Nathan Penny.
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The GDT index rose 0.4% on May 8 and the dairy commodities market has risen a total of 28% since it began a five-month upward trend last December.

While the rate of climb has eased in recent auctions the 1086 index level now reached is only 10 points below the market’s recent high mark of 1096 in June 2017.

Dairy market analysts say the prolonged world market rise has confirmed this season’s milk price within Fonterra’s current range of $6.30-$6.60/kg milksolids.

“The recent strength in price combined with our softer outlook for the NZD/USD exchange rate has boosted the 2019-20 season forecast, now $7.20, previously $7,” Westpac senior economist Anne Boniface said.

She also lifted her current-season forecast 10c to $6.50.

The factors include firm demand from Asia and only modest milk output from northern hemisphere producers during their spring.

ASB rural economist Nathan Penny noted the mixed results from the latest GDT event, three products with increased prices and four that fell, with butter remaining steady.

Rennet casein was up 3.1%, skim milk powder 2.8% and anhydrous milk fat 1.4% while butter milk powder was down 10.3%, lactose down 2.7%, cheddar down 2.4% and whole milk powder 0.5%.

For the market as a whole the rise in SMP outweighed the fall in WMP so the GDT index rose.

Dairy markets have now fully factored in the recent slide in New Zealand production.

“We anticipate that dairy prices may continue to bobble along near current levels over the next few months until markets learn more about the production outlook for the new season,” he said.

Fonterra’s Global Dairy Update for April shows March production for NZ was down 7.5% compared with March 2018 but production in the 12 months to March 30 was up 3%.

It was the second warmest March on record and dry conditions across the North Island and most of the South Island limited milk production.

Australia’s production in February was down 14% compared with February 2018 while European and United States milk production is effectively flat-lining on monthly and yearly comparisons.

Fonterra’s own collections in March were down 9% here and 27% in Australia, highlighting a worrying loss of market share for the co-operative.

The Australian intake is down 18% for the nine months of this season, July 1 to March 31.

“Collections continue to reduce due to adverse on-farm and weather conditions, increased cull cow rates, farm exits in key regions, cost of inputs and losses in a highly competitive market,” Fonterra said.

Despite the big fall in autumn milk production Boniface still expects NZ’s seasonal result to be up 2% on the previous season.

However, she does not expect that to repeat in 2019-20.

“Increased environmental regulation will limit herd expansion. 

“While seasonal variation will continue to be an important swing factor, growth in nationwide milk production will increasingly rely on further productivity improvements in the sector.”

Average milk production per cow is up almost 20% on a decade ago.

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