Headwinds for New Zealand fanciers are increasing

Fonterra doesn't have the right thing yet announced the milk price to decrease or reduce the Global Dairy Trade (GDT) records the lowest price in 1 year. It is the first corner from which dairy farmers are hit.

Revival is nothing more than that
At the December 19 auction, the average milk price dropped to $2.969 per tonne. The decline proves that the revival of the previous auction was no more than a brief revival. At the last minute, the auction reaches the lowest point of 2017. At the same time, the price remains far away from the low of $1.815 per ton, which was reached on August 4, 2015.

Across the board, prices fell by 2,3% to 7,9%. Butter recorded the smallest decrease, while the price of cheddar decreased the most. Trendsetter whole milk powder reports a decrease of 2,5%, which amounts to $2.755 per tonne. Roughly speaking, a price of $3.000 is used for a cost-covering milk price.

Now that the gap between this limit and the current quotation for whole milk powder is increasing, the tension around the milk price is increasing. Good news is that Fonterra indicates that it has already sold a large volume in advance. Whether it is enough to rule out further price declines remains to be seen. At the same time, dairy farmers have chance to fix the price via the futures market. Those who did this early are already reaping the benefits.

What is the second blow?
Lower prices usually compensate dairy farmers with more liters, but here it is a problem. Dairy farmers in New Zealand appear to be suffering from the dry conditions. As a result, less grass grows and there is also a delay in building up feed stocks for the winter. 

The knife cuts on both sides. On the one hand, lower quality grass means fewer liters of milk. This can be compensated for by providing additional feed, but this in turn results in a higher cost. It is precisely the latter that is a big gamble, now that the market does not provide any hard guarantees for a stable milk price.

On the other hand, smaller stocks in the winter period can result in higher costs or mean that fewer livestock are kept. This continues the trend, which points to a decline in the number of cattle. The fact that this is hardly reflected in the milk supply can be attributed to higher milk production per cow.

In November, New Zealand dairy farmers proved that they had sufficient knowledge to overcome the initial problems. Milk production thus amounts to 2,96 million tons. That is an increase of 4,2% compared to last year. In December it will be a lot more difficult to maintain this plus. 

Bacteria plagues the sector
The sector is suffering a third blow from an outbreak of the bacteria mycoplasma (MYC). As the outbreak affects more and more companies, the scale is becoming so large that it can no longer be ignored. This is a bacterium that causes mastitis and reaches the udder via the bloodstream. It spreads through milk and is therefore highly contagious.

It is not clear what the source of contamination is. However, it appears that it is not possible to stop the infections. Whether this is because dairy farmers do not properly comply with the procedure or the procedure is not compliant is now being investigated. That this blow is the most dangerous and largest is evident in Southland, among other places. All the dairy farmers who came to the information meeting could not even fit in the room.

Exciting times
Things are not going well for dairy farmers in New Zealand. They face challenges from three angles. On top of that, the European Union is increasingly dominant on the market and it is less and less the influences from New Zealand that determine the price on the world market. The 3/2017 season will rightly be a make-or-break period for the sector.

$1 = €0,8438More milk than anticipated puts pressure on prices.