New Zealand dairy farmers are struggling to keep production ahead of last year's record milkflows, even though summer rains have rescued many regions from the drought that loomed before Christmas, a commodities report says.
New Zealand dairy farmers are struggling to keep production ahead of last year's record milkflows, even though summer rains have rescued many regions from the drought that loomed before Christmas, a commodities report says.
"The impact of cows culled, lost production and cows dried-off early will ... result in production struggling to stay ahead of last year through the rest of the season," Rabobank economists reported in their regular agribusiness report.
The very heavy rains which arrived over the Christmas and New Year period enabled North Island dairy farmers to avoid what would have been a very early and severe drought, Rabobank said.
The North Island produced just over 60 percent of the nation's milksolids last season -- even though there were also drought problems last year, when Fonterra's milkflows in the North Island fell by about 4 percent, while its South Island milk production rose by 10 percent.
Nationally, milkflows rose to 16.5 billion litres, containing 1.44 billion kg of milksolids, a 3.3 percent lift compared to 1.39 billion kg processed in the previous season. The biggest increase in dairy export volumes in December was in whole milkpowder (WMP) as milk diverted from other product streams lifted the WMP exports that month to more than 100,000 tonnes, with a record 50,000 tonnes of it going to China.
Rabobank said that improvements in commodity prices in New Zealand dollar terms had strengthened local prices by 4 percent to 9 percent this season, with the exception of cheese prices which remained flat.
In NZ dollar terms, butter and powder prices are now more than 20 percent higher than in early 2010, and Fonterra's projected payot for this season is at least $7.30
kg milksolids -- equivalent to nearly $900,000 for the average Fonterra supplier, if the company can match its 1.286 billion kg milksolids production last year.
Federated Farmers' dairy section chairman Lachlan McKenzie said last night that he expected this season’s production to be hit by drought in the upper North Island.
The ASB Bank said last night that though the NZ dollar exchange rate is in the middle of its 2011 range at US76c‐US78c, the downward pressure this exerted on farmgate earnings was being offset by extremely strong commodity prices.
A former New Zealand academic and Western Illinois University agriculture professor Bill Bailey said that prices for all ingredients were up again in both Oceania and European markets.
But he noted that the reduced number of bidders and eventual winners taking part in the fortnightly Fonterra auction online was difficult to read.
"Are the needs of an increasing number of buyers covered so that only those short of product involved in the auction; or have prices reached levels where the remaining bidders are only those with deep pockets?," he said.
Comparing the latest auction prices to last year at this time, anhydrous milkfat (industrial butter) prices are up 55 percent, skim milkpowder (SMP) up 34 percent and WMP up 22 percent.
Demand did not seem to be weakening even in view of the high prices.
Prof Bailey said that New Zealand dairy production was slowly recovering.
"Given the challenges earlier in the season, even the current idea of production increasing 1 percent– 2 percent from last year is good news to the market."
