New Zealand on course for record milk production

With milk production in New Zealand on course for an all-time high, Tuesday’s first gain since last May in the GDT Price Index might be a mixed blessing for EU milk prices.

Since the summer, Global Dairy Trade auctions have seen the index drop by more than 20%.

Milk production. File photo

But when 36,450 tonnes of product were auctioned on Tuesday, the market delivered a 2.2% average rise.

The price for the key product in New Zealand, whole milk powder, advanced 2.5%, having fallen about 19% since May.

That is likely to ease the milk price worries of farmers down under, and drive them on to set a new milk production record.

With New Zealand the world’s eighth largest dairy producer, and 95% of the products made from New Zealand milk exported, it has a huge bearing on world prices.

Milk price forecasts in New Zealand for the current season have recently tended downwards, but the GDT gain may encourage Fonterra, the main buyer of milk in New Zealand, to announce a more favourable than expected milk price forecast today.

That would continue the country’s faster than expected milk production growth, already 6% ahead of last year, thanks to generally favourable weather (and rising, with milk production in October 6.5% higher than a year ago).

Record New Zealand milk production will keep a lid on a global market boosted this week by an easing of US-Chinese trade tensions, which promises to maintain the Chinese demand on which dairy exporting countries depend.

The increased NZ milk production, although now past its annual peak, is cancelling out a shortfall in Australian production compared to a year ago, and the slowing of EU production due to the summer drought.

But falling crude oil prices since early October, and global equity market wobbles are unhelpful for dairy prices.

On the plus side, the continuing rundown of EU skim milk powder (SMP) stocks can support prices.

EU Commissioner Phil Hogan told the ICMSA AGM last week in Limerick the SMP stocks will be eliminated by mid-2019.

In the Global Dairy Trade event on Tuesday, a 0.3% rise in the SMP index showed some life left in that market, and the butter index gained 2.7%.

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