Drought depresses milk supply in New Zealand and Australia

Milk production has fallen in recent months in Oceania's major dairy regions. In New Zealand, production in February was 1,87 million tonnes, down 2,56% year-on-year, according to the New Zealand Stock Exchange (NZX). Production of fat and protein (milk solids) fell slightly less sharply, by 2,04% to 171.157 tonnes.

In Australia, milk production also fell by 4,82% from last year to 572,4 million litres, regulator Dairy Australia said.

Due to a lack of rain in the region, the availability of animal feed has decreased significantly. As a result, dairy farmers have had to adjust their feeding plans, resulting in lower milk volumes.

New Zealand
On the North Island of New Zealand, where most of the country’s milk production takes place, it has been unusually dry since late November. Rain has fallen only sporadically. Dry winds have further reduced humidity, which has affected the growth of forage crops. As a result, dairy farmers have started feeding grass silage earlier than usual or have purchased extra feed. Others are trying to reduce feed requirements by sending certain animals to slaughter or drying off cows early. Drying off normally starts between April and May, but some farmers have already started doing this to maintain the body condition of their cattle in anticipation of the next milking season.

Given these conditions, NZX expects milk production to continue to decline. March is forecast to decline by 1,9%, followed by 2,6% in April and 3,1% in May. Despite these short-term declines, milk solids (fat and protein) production is expected to increase by 2% year-on-year over the market year.

Australia
In Australia, February weather conditions varied greatly by region. Queensland experienced relatively mild weather with sufficient rainfall, while the south of the country experienced high temperatures and low rainfall. In general, dry spells led to rising prices for water and feed.

According to Murray Irrigation, the average price for water rose 521% year-on-year to AU$99 per megalitre. At the same time, trading volume increased 43% to 43.968 megalitres. The Victorian Water Register also reported an increase, with 171.683 megalitres of water traded in February, up 7% year-on-year, at an average price of AU$131 per megalitre, up 323%.

The number of animals slaughtered also increased: in February by 13% compared to the previous month to 3.580 animals. However, the slaughter figure for the season is 2% lower than last year, at 30.920 animals.

Outlook dependent on precipitation
Milk production in the coming months will depend heavily on rainfall. Sufficient rain is essential for forage. According to the Australian Bureau of Meteorology, rainfall between March and May is expected to be around average for most regions, although Queensland and north-eastern Australia are forecast to see less rain than normal.

Annual forecast
With just a few months left before the milk season, high milk prices could further boost production in Oceania. Unlike previous seasons, where milk prices often fell after initial payout forecasts, the upward trend is now expected to continue. According to DairyNZ, the expected payout is NZ$10,13 per kilo of milk solids.

At the same time, rising feed and fertilizer costs will keep operating costs high, partly because dairy farmers are using more of them to take advantage of high milk prices.

External factors that could influence the market include trade policy, a potential recession in the United States and the prospect of a free trade agreement between India and New Zealand. Given the uncertainties, DairyNZ advises farmers to use the higher milk prices they receive to build a financial buffer.

In Australia, Dairy Australia expects a slight decline of 0,83% in milk production for the 2024/25 season, which equates to 8,3 billion litres. This forecast takes into account ongoing drought conditions and structural challenges such as labour shortages and scaling up within the sector.

Export opportunities in China
The development of dairy demand in China remains crucial for Oceania’s export position. After years of steady growth, both Chinese milk production and demand are now declining. According to Rabobank, milk production in China is expected to decline by 2,6% year-on-year, mainly due to lower milk prices for farmers. In January, the price fell by 14,52% from last year to 312 yuan (€41,29) per 100 kilos, according to dairy market analyst CLAL. China’s declining domestic production could provide room for an increase in dairy imports from Oceania.