New Zealand milk production forecast to fall this year
13 June 2012
FACTS: Dairy product prices in New Zealand (NZ) are forecast to be weak in the short term but to recover in 2013/2014.
ANALYSIS: The New Zealand Ministry for Primary Industries (MPI) forecasts a slight reduction in NZ milk output this year with output (measured in terms of milk solids) to increase by 2% per year over the period 2014-2016. MPI forecasts that the price paid to NZ dairy farmers will decline in the short term but increase over the period 2014-2016. NZ's milk season runs from June to May. MPI ascribes the current downtrend in global dairy prices to bulging milk output globally and to weakening demand due to the European debt crisis. NZ was a significant contributor to global milk expansion. Milk solids output there rose by 10% in the season just ended, primarily accounted for by a 7% increase in cow productivity. This, as MPI notes, reflected (exceptionally) favourable climatic conditions. On the assumption of a return to normal conditions this milk season, total milk solids output is forecast to decline modestly despite a forecast 2.2% increase in cow numbers. MPI forecasts a similar rate of increase in dairy cow numbers over the coming years.
DAVY VIEW: The MPI milk output forecast is highly sensitive to climatic conditions, and changing conditions in NZ (the world's biggest dairy exporter) have a big bearing on the global price level. Across the globe this year, weather has been benign. Milk production has been flush and has contributed, probably more than any demand slowdown (occurring also in developed markets), to the slump in dairy product prices. To the extent that MPI's forecast proves accurate, this slump should reverse. It will reverse all the more so on signs that lower prices are tempering global dairy expansion. Some evidence in this regard is visible in the US, but it is insufficient to prevent necessary reductions (to reflect the global price situation) in Irish milk prices.