Inside Milk
New Zealand milk price rising, but limit in sight
In New Zealand, a time-honored economic law applies to the dairy sector. The demand for dairy products is strong, while the limit in milk production seems to have been reached. The effect: expectations of a rising milk price for the 2019/20 season in the first half of this year.
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Milk production in New Zealand, where it is now summer, traditionally peaks in the months of September to January. Milk supplies in New Zealand in November 2019 amounted to just over 3 million tonnes, reports the dairy industry trade association DCANZ. This is a fraction more (+0,27%) than in the same month a year earlier. In October, on the other hand, milk supply was slightly lower than in the same month of 2018. This means that production is recovering somewhat, because the annual peak last October was still well below the 2018 level.
Less favorable weather
In the first 6 months of the New Zealand milk season, which starts from June, dairy farmers delivered a total of 10,77 million tonnes of milk to the factories. This is more than 0,5% less than in the first half of the previous season. Particularly less favorable weather conditions, such as drought, play a role in this. If you compare the development of milk production in the calendar year 2019 with the 5-year average (see graph below), you will see that these lines overlap eerily.
As a result, it appears that New Zealand's milk production, which relies on grass production, is reaching its limits. Rabobank dairy analyst Emma Higgins also indicates this. "The time for big steps to be taken is over," she says New Zealand media. Another factor is that the size of the New Zealand dairy herd may also come under pressure due to environmental and nature regulations. "The weather will play an even more important role in the annual development of milk production."
Strong demand from China
The New Zealand branch of Rabobank expects that the average milk price of Fonterra will increase in the second half of the milking season, which runs until May 2020. Demand from China in particular is good, which means that the export of dairy products such as whole and skimmed milk powder is running smoothly. As a result, there were record high dairy exports in December. Add that to a largely stable milk production and the ingredients for a higher milk price are there.
Rabobank expects that the average milk price for the 2019/20 season could rise to NZ$7,60 per kg of milk solids. This translates to around €34,40 per 100 kg of milk at 4,41% fat and 3,47% protein. Compared to the bank's previous expectations, this is a plus of 6%. This puts the bank's estimate at the top in terms of the milk price than previous estimates from other analysts.