New Zealand weather may keep global dairy markets volatile

Volatile dairy incomes may take yet another unexpected turn, due to drought in New Zealand, the world’s No 1 dairy exporter.

Teagasc this week predicted the Irish milk price will fall 10% in 2018, but on Tuesday, prices rose for the first time in five Global Dairy Trade auctions, which have an important bearing on global prices.

The rise is attributed to expectations of falling milk production due to dry weather in New Zealand.

Milk output, undermined by a prolonged rainy spell early in the season, is now threatened by dryness, according to Bank of New Zealand dairy analysts.

Just one week into New Zealand’s summer, many parts of the country already face water shortages, and meteorologists say farmers could be in trouble if it doesn’t rain soon.

The country’s National Institute of Water and Atmospheric Research is forecasting a warmer summer than usual, due to a La Nina pattern likely to make the South Island drier than usual.

Some regions had their driest November since the 1940s, further denting New Zealand farmer confidence after election of a coalition government expected to enact environmental policies that will constrain the rural sector.

EU dairy leaders will be keeping a close eye on New Zealand weather forecasts.

European Commissioner for Agriculture and Rural Development Phil Hogan told last Monday’s Food Wise 2025 conference that global dairy markets are weakening, due to rising supply, and the EU’s 380,000 tonnes of skim milk powder waiting to be sold out of intervention.

Mr Hogan said the giant Friesland Campina co-op based in the Netherlands has written to dairy farmers calling for them to restrain milk production.

“I believe it is very important that industry acts in concert across all EU member states to manage the supply side,” said the Commissioner.

He said the EU has to realistically proceed with the release of its huge skim milk powder stocks, and prevent any further intervention build-up next year.

Therefore, the 4.7% rise in skim milk powder price at Tuesday’s Global Dairy Trade auction (after a 6.5% fall on November 21), helping to lift the average GDT dairy product price 0.4%, brought encouragement.

Analysts in New Zealand said after the auction that short-term price risks were largely balanced, with dry New Zealand weather on one hand, and improving global production on the other.

They said New Zealand milk production hasn’t been affected by dry weather yet, but it if continues, it will affect production through the summer months.

But farming organisations in Canterbury, which has 18% of New Zealand’s dairy cows, have advised members to prepare for a dry Christmas.

New Zealand’s dairy farms are estimated to use as much water as 58.2 million people, mostly on about 2,000 farms in dry areas such as Canterbury and Otago.

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