NZ’s Dairy Flood

It will be tougher for dairy producers in Georgia to compete with powdered milk imports this year than last year. Notwithstanding higher farmgate prices for fresh milk in winter as a normal seasonal trend, increases in efficiency are desperately needed to maintain competitiveness.

From The Queensland Country Life:

NZ’s dairy flood

02 Dec, 201103:00 AM
GLOBAL milk markets are poised for a big spill as the world’s biggest exporter, New Zealand, delivers record spring volumes and Northern Hemisphere consumers struggle to eat through expanding domestic stockpiles.Just when it looked like world dairy markets had recovered from the Global Financial Crisis price crash to establish a welcome pattern of relatively robust demand matched by healthy prices, China has begun easing back its import orders.

The huge US herd is also producing too much for its domestic market after consistently lifting production by about two per cent annually for much of the past decade.

Australian milk production is up too – set to rise another 2.2 per cent in 201112 to around 9.2 billion litres, while NZ production is on track to exceed 18b litres with a five per cent rise after a bumper spring.

NZ dairy processing giant, Fonterra, which is responsible for about 35pc of the world’s total dairy products export trade, has been swamped by farm milk deliveries this spring.

It now has its milk powder drying plants running at full throttle to make room for a king tide of receivals – as much as 82 million litres a day in the past two months.

The National Australia Bank (NAB) is forecasting the global surplus will trigger a seven per cent fall in international prices compared with 201011.

NAB’s agribusiness general manager, Khan Horne, noted that although global milk prices were now as much a 48.5pc above their average during the past decade, global demand had not kept pace with supply.

“The key question is who is going to absorb this surplus,” he said.

“A strong season in the northern hemisphere has resulted in a considerable exportable surplus and looking ahead, these market fundamentals point to further falls in the world dairy price during the year.”

Dairy Australia chairman, Max Roberts, said US production had been rising steadily in recent years, partly because of a wave of new growth outside traditional dairy States like Wisconsin and California – including big scale corporate dairy farms now in financial stress.

“Even a half a per cent of increased production in America represents a lot of milk – the US produces 85 billion litres a year,” said Mr Roberts, who farms on the NSW South Coast.

“Their domestic dairy products market is now full, which means even a few hundred tonnes of surplus cheese or milk powder pushed onto world markets at heavily discount prices sets a whole new price signal and starts the volatility cycle again.”

Reports from the US suggested some farms were bracing for price cuts of 30 to 40pc in the next 18 months.

However, while more global price volatility was looming in 2012, Mr Roberts said long term dairy demand and production trends suggested the world was still headed for a five billion litre milk production shortfall by the end of the decade.

Dairy Australia is even tipping some oversupply concerns will ease after April because China’s hunger for dairy products is not likely to see it restrict import activity for long.

Strategy and knowledge manager with Dairy Australia, Jo Bills, said China – the world’s biggest milk powder importer – was expected to absorb a lot of NZ dairy product after new free trade agreements between the two countries slashed tariff barriers in January.

NZ’s big spring and summer milk volumes would also settle down early in the year.

Australia’s big export cheese market to Asia and the Middle East was probably the area most vulnerable to any potential global price slump.

Market signals were not alarming at present, with global dairy prices dipping about two per cent in the past eight weeks, but also rebounding slightly on occasions during November.

Mr Roberts said while herd sizes in much of Western Europe were stable or even shrinking, some newer European Union member countries were lifting dairy production, which helped confuse market signals.

In Australia NAB noted that most of domestic milk volume increases were in northern and western Victorian, where production was up 11.4 and 5.5pc respectively, with a solid 10pc jump in Tasmania.





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