Michael Harvey, a senior analyst at Rabobank, says that there has been a lot of talk about New Zealand’s milk supply as the season’s peak draws near. “There was always a chance of bad weather,” he says. “And some of the risks have already begun to come true.”
Based on milk solids, New Zealand’s milk production for August 2022 was down 4.9%. This means that, so far this season, New Zealand’s milk production is down 4.4% (4.2% if you look at milk solids). Rabobank thinks that milk production will go down for the whole season. “On the other hand, US milk production rose the most in August in 15 months, and the US milk supply is showing some good signs,” says Harvey.
OVERVIEW OF GLOBAL DAIRY MARKET PRICES
Milk supply
Even though Australia’s milk supply was strong going into the 2022-2023 season, it started off on a bad note. Last season, the national milk supply dropped by 4%, and it’s down more than 8% at the start of this season. Rabobank still thinks that milk supply will stabilise as the season goes on because there is plenty of feed, water for irrigation, and good farmgate margins.
The Rabobank analyst says that even though Chinese buyers aren’t around as much as they used to be, they can still be seen on global markets. The August numbers showed that the total volume had dropped for the sixth year in a row. Rabobank has been predicting that imports will be lower in 2022, and this trend is likely to continue into 2023.
“It doesn’t surprise me that China’s imports are going down,” says Harvey. “A strong local supply, a lot of stock on hand, and a drop in consumer demand are all leading to fewer imports. The China dairy market will be watched closely to see where prices are headed in the future.”
Rabobank says that other importers are taking advantage of lower prices and less buying from China. “This has helped keep Oceania’s commodity prices stable in September, after they had moved a lot since March.” In the dairy complex as a whole, spot prices for products from Oceania went up by a small amount. Rabobank does not rule out further price drops and says that local exporters will be happy with the recent price stability.
Prices for dairy
At the Global Dairy Trade auction on October 18, prices went down, which was the same thing that happened at the last event. The average price at the sale every two weeks dropped 4.6%, to US$3,723 per metric tonne (mt). Butter fell another 2.6% at the last auction, making it worth US$4,851 per mt. This is a long way from March, when it was worth US$7,086 per mt, says Nathan Penny, a senior agri economist at Westpac.
OVERVIEW OF GLOBAL DAIRY MARKET PRICES
Whole milk powder, which has the most impact on Fonterra’s farmgate milk price, fell 4.4% to an average of US$3421 per mt. Skim milk powder, Fonterra’s second-biggest reference product, fell 6.9% to an average of US$3,250 per mt.
Penny says that the bad result is because the economy in China, which is Zealand’s main market, is weak. “China is sticking to its Covid Zero policy, which limits people’s freedom of movement and, in turn, slows down the economy. At the last Communist Party Congress, this policy was again reaffirmed. Dairy markets may have been hoping for some relief on this front, but since none has come, they have priced in more price drops for dairy products around the world.
Sieta van Keimpema, who is the head of the European Milk Board (EMB), has said that dairy farmers and their families can’t handle the rising costs in the industry right now. She would like to see farms and food processors get money to help pay for energy costs. Van Keimpema says, “The individual actors in agriculture and along the food production chain depend on energy and production inputs being available at low prices.” “Today, there is a slow domino effect, where each link in the chain brings down the next one.”
