Extreme weather good for dairy farmer?

De Global Dairy Trade (GDT) recorded an increase of almost 3% for whole milk powder in the first 2018 months of 12. The milk price paid by dairy farmers received in the European Union (EU) fell at the same time by almost the same percentage. It is a striking movement in an extremely special quarter.

Wrong expectations
How is it possible that the milk price in one region is boosted with less milk, while the milk price in the other region only fell? The difference is made by expectations; that's what the market expected extra liters of milk from the EU. The fact that the gains remained modest, and sometimes did not materialize at all, can only ensure stabilization.

The European Union started the year with a plus; for example, milk supply increased by 4% in January. This means that 501.000 tonnes more milk was available compared to January 2017. There are no hard figures for February yet, but based on information from Germany, France, the Netherlands and the United Kingdom (UK), it can already be said that the growth has been halved. This is mainly due to the winter weather, also known as 'the Russian bear' (or: Beast from the East). 

Postponement of the grazing season
In March, livestock farmers are also plagued by the weather and further stagnation in the growth of milk production is seen. This is further reinforced by the postponement of the grazing season; For example, in the UK and France, cows only went out to pasture in the first week of April, while this usually takes place in mid-March.

The problems are not limited to the EU, because livestock farmers in the United States (US) also have to recover from this the extreme winter weather. It was unusually cold there. Nevertheless, the milk pool in the US managed to grow by approximately 1,8% per month in January and February. This corresponds to 288.938 tons of milk.

In both the US and the EU, the plus is lower than expected, which reduces the pressure somewhat. That won't be for long, because that tension is increasing again because stocks (both in the EU as the US) are large. As a result of these developments, slightly less milk also results in less pressure and that results in stabilization, but price recovery remains difficult (with the exception of butter and cream).

Fewer liters in New Zealand
The situation in New Zealand is different. The milk supply for January is 4,9% lower and February shows a minus of 2,2%, which translates into 161.000 tons of milk less. This is why whole milk powder had the opportunity to post double-digit gains on the GDT in the first quarter. In contrast, the milk pool in Australia grew by 68.900 tonnes; on balance it still means less milk from this region.

Although 2018 has gotten off to a bad start for New Zealand, milk production did grow in 2017 (compared to 2016). Only in 2013 the start of the year was even worse, when livestock farmers needed until October to get the milk supply back up to standard. However, dairy farmers only had to deal with drought later in the year.

The remaining months of 2018 (until the New Zealand winter) will determine how much feed dairy farmers can gain. The first reports of dairy farmers drying off and selecting cows early have already arrived. Add to that the discussion about the use of by-products from the palm oil industry and there is less milk to come. Although the milk price is not bad, livestock farmers have to absorb fewer liters of milk. At the same time, it looks like the milk price in Australia is going to take a wrong turn.

Who milks less?
In the EU and New Zealand it is now time again. In the EU, spring is not yet helping, but stocks from previous years are helping. On the other hand, the milk price has fallen sharply, but still covers the costs. A further decline could change that and several European livestock farmers would find themselves in dire straits. Things will still be exciting in New Zealand, but it is certain that less milk will be produced here in both the second and third quarters (than in the peak year of 2017).

The US is an uncertain factor; there they aim for more milk per cow. At the same time, the forecast for the milk price has improved slightly. In combination with growing weather, it may be possible for dairy farmers to extend growth by 1 year. As a result, New Zealand can create a mood, the EU can help through a declining plus and more milk from the US can hinder the turnaround in price formation.EU milk production still well above US volume.