Events on the other side of the world threaten to disrupt dairy markets, as Tuesday’s global dairy trade (GDT) price index fell 4.7%, attributed to the coronavirus outbreak in China, where the death toll passed 420 this week.
But weather devastation in New Zealand, the world’s main dairy exporter, may also disrupt markets.
China is the EU’s top destination for skim milk powder exports, and the EU’s No 2 market for butter exports, so the GDT commodity price fall in worrying, amid coronavirus outbreak concerns.
However, Chinese buyers were reported to have remained active at similar levels to recent GDT auctions, leading some analysts to predict the coronavirus impact on dairy markets and prices will be short-lived.
Instead, the weather in New Zealand could become a bigger factor.
There is the possibility of a drought in some areas of the North Island of New Zealand, even as floods have cut off more than 100 dairy farms in the South Island.
New Zealand is estimated to supply 19.3% of the dairy products which go on the world’s export markets, and disruptions in the country’s supply therefore have major effects on market trends.
In the country’s North Island, milk production is falling behind compared to last season, as farmers dry off herds a few weeks earlier than usual, after at least three weeks of 25 to 30°C temperatures without rain stopped grass growth.
The upper North Island has widespread and expanding meteorological drought conditions, and mostly dry conditions are forecast to continue.
Meanwhile, flooding has ravaged Southland-South Otago, causing power cuts and cutting off milk collection tankers.
Reduced dairy supplies from New Zealand could have an exaggerated effect on current markets due to global milk supplies growing by less than 0.5% for most of 2019, and this trend being likely to continue with growth of less than 1% through 2020 and possibly into 2021.
IFA sources said this week: “Subdued international milk output, coupled with somewhat better international demand, boosted by cheaper dairy products, is the main reason why, despite concerns over Brexit, and other international trade difficulties, dairy prices have not fallen as much as expected during 2019, and have even started to improve, especially for SMP, since August or so.”
On the coronavirus outbreak in China, IFA sources said: “It is only to be expected that the movement of goods, indeed demand for goods, will be affected by the lock down. What impact this might have on the global market for dairy will obviously depend on how soon the situation can be brought under control, then resolved.”
Meanwhile, Irish dairy farmers were able to take heart from Dairygold’s offer to its milk suppliers of a 31.75 cent per litre (cpl) fixed milk price commencing March 1 next and ending on November 30, 2022.
Inclusive of VAT and balanced scorecard and sustainability bonus payments, at 3.3% protein and 3.6% butter fat, the price equates to 35.86 cpl when adjusted for Dairygold’s 2019 average annual milk solids.
The board of Dairygold also last week approved a milk bonus of 0.5c per litre including VAT on all milk supplied in 2019.
It will be paid with the January milk payment.
Dairygold chairman John O’Gorman said; “The movements in global dairy supply and demand in recent months have created a more balanced market with firmer returns across mainline dairy commodities, especially protein products. As a co-operative with a good 2019 performance we are happy to reflect that upturn directly in the form of a milk price bonus.”