Fonterra said it would reduce the tonnages of dairy products on offer across all selling channels after estimating a 7% fall in milksolids compared with last season.
After some adjustment for loss of market share and regional differences in company coverage, Fonterra’s prediction implied New Zealand as a whole would be down 5% this season compared with last season, analysts said.
As the largest dairy exporter in the world, NZ’s milk downturn was a significant factor in the supply and demand balance and therefore should lift market prices for dairy commodities.
Fonterra doubled the production deficit forecast when it became apparent very wet farm conditions in Waikato had capped the spring peak intake at 80 million litres a day nationally and a compensatory recovery was unlikely.
Late October milk flow in Waikato was down 14% and Waikato produced 40% of NZ’s milk.
Since early August Fonterra had withdrawn 8% of volumes from forthcoming GlobalDairyTrade auctions, putting buyers on notice they would need to compete more vigorously for the remainder.
“These reductions in daily milk volumes are highly unusual and Fonterra is continually assessing the ongoing impact on its contract book and future production plans, given that milk collections at the peak of the season will not recover and will flow into the balance of the season,” it said.
The November 1 GDT auction would be the first public test of the new supply and demand dynamics, though prices might not rise immediately, analysts said.
“Sometimes the northern hemisphere players think we are bull-shitting,” Federated Farmers dairy chairman Andrew Hoggard said.
“There is room for some confusion between these latest Fonterra figures and the most-recent Dairy Companies Association of NZ figures for September, which said NZ was down 2% season-to-date.
“Buyers like to have confirmed supply signals but I think there will be some price response.”
Hoggard had just returned from world dairy industry conferences in Europe, where he said milk supply forecasts from NZ were viewed sceptically because of our considerable influence on world trade and recent record of production growth.
He thought the NZ season could end at minus 2% as other regions of the country, including his own Manawatu, were having good spring conditions.
“Buyers like to have confirmed supply signals but I think there will be some price response.”
Andrew Hoggard
Federated Farmers
AgriHQ dairy analyst Susan Kilsby said the latest revision of Fonterra’s collection deficit from minus 4% to minus 7% was a shock.
“It is unusual that a pasture shortage in spring is holding us back because this is the time, seasonally, when we have pasture surpluses.
“While I don’t think it means that Waikato farms will have feed issues over summer, the problems now will also impact maize planting and silage making.”
Kilsby said NZ’s ability to move the world supply/demand balance had reduced somewhat now European Union dairy countries had removed production caps.
“The market is a little wary of Fonterra numbers so this latest announcement may have less effect on GDT auction prices and futures prices than first thought.”
The October edition of Fonterra’s Global Dairy Update said European milk production fell in August for the third month in a row and Australian production was down 9% in the month, compared with 2015.
Chinese dairy imports were up 28% in the 12 months to August, with one-third more of fluid and fresh dairy, infant formula and whey powder combined.
Fonterra said its milk collection for the four months to end-September was down 3% nationally, down 5% in the North Island and up 2% in the South Island.
Fonterra Australia’s three-month collection was down 13% because of unfavourable winter and early spring conditions.
The Fonterra forecast of its own milk collection in NZ this season, which it was required by regulation to update and make public, had been revised downwards to 1460m kg milksolids.
Last season it collected 1566m kg, hence the minus 6.76% prediction on last season.
Last season was 3% down on the season before.
Season-so-far milk takes
- North Island -5%
- South Island +2%
- New Zealand -3%
- Australia -13%
