Limited supply growth helps keep prices stable

Published 19 September 19

The recent stability in global dairy markets can be attributed to the limited growth in milk supplies. With little additional supply expected from the key producing regions in the northern hemisphere in the second half of the year, any growth in milk production will need to come from southern hemisphere regions.

The continued pressure on farmer margins in both Argentina and Australia, arising from the added cost of drought, means New Zealand (NZ) remains the only region which could add to the global pool.

Forecasts suggest a 0.5% lift in NZ production for the 2019/20 season, although it is very early in the season to put much confidence in this. They have had a good start to the season, with production in the first two months up 8.7%.  However, these two months typically only account for 2% of total season production.

In terms of farm profitability, Fonterra announced its forecasted milk price for the 2019/20 season to be $6.75/kg - $7.25/kg of milk solids. This price is sufficient to cover production costs, estimated by DairyNZ to be $5.95/kg milk solids on average. However, farm finances are said to be under some pressure, so the lack of a dividend payment for the 2018/19 will not help to improve this situation.

The weather for the next few months, NZ’s peak production period, is forecast to be average to above average, both in terms of temperature and rainfall. There is also a suggestion that pasture availability is good, supporting good access to grazing.

Overall, production coming out of NZ over the winter looks set to be in line with expectations, with little chance of any significant growth.  There is, however, the possibility of lower than expected production, particularly if weather conditions turn unfavourable.  

Patty Clayton Project Blue