Storms may set back New Zealand dairy recovery

Two storms which flooded large areas of New Zealand’s North Island in recent weeks may have encouraged dairy product buyers, whose bids moved the GlobalDairyTrade average index up 3.1% at Tuesday’s auctions.

The Insurance Council of New Zealand said storm damage may run to tens of millions of dollars.

On farms, flood damage to pastures and maize could leave many short of forage for the coming New Zealand winter.

Some of the worst hit farmers have had to cull cows, or find grazing elsewhere.

More than 2,000 cows had to be relocated in Waikato, an important dairy region. More than 5,000 had to be shifted from flood-hit paddocks in the Bay of Plenty region.

It was the last thing New Zealand farmers wanted, after two seasons of low milk prices.

The bad weather in the world’s main dairy product exporter has affected markets, which had seemed up to now to be preparing for recovering milk flows in the EU, and the consistently high US production.

In New Zealand, February milk production was better than expected, only marginally behind 2016 levels, but the storms may slow recovery.

Tuesday’s GlobalDairyTrade (GDT) price for butter and SMP would return a gross 37.3 cent per litre before processing costs of 5c, equivalent to a milk price of 32.3c plus VAT, or 34c including VAT, in Irish terms, said IFA National Dairy Committee Chairman Sean O’Leary.

The GDT recovery lifted skim milk powder (SMP) 7.1%, bringing hopes of recovery in this commodity market which is so important for the EU,

EU SMP prices have been dropping since January, and member states have now resumed selling SMP into the EU’s already overflowing 350,000 tonne intervention stores.

Falling prices for the protein- related products such as milk powder are mainly due to sluggish demand in the European and the world market.

However, butter prices are still high, and milk volumes, although recovering, were 2% lower in EU in January than in 2016.

Meanwhile, the Trump effect is also being felt in dairy markets. It has led Mexico to reduce its import reliance on the US, with an increase in EU exports to Mexico of 10% seen in the last three months of 2016.

And Jaime Castaneda, a senior vice-president in the National Milk Producers Federation in the US, warned last week that if the Trump administration conducts immigration raids on dairy farms, the price of a gallon of milk could soar to $8.

Mr Castaneda said that 80% of milk in the US comes from farms that have foreign labourers.