New Zealand 2014 Milk Supply Rebounds after 2013 Drought

NEW ZEALAND - Barring another nationwide drought New Zealand farmers look set to increase the milk supply in 2014 to a forecast 20.6 million metric tons (MT). This represents a 4.5 per cent increase from the amended estimate for 2013 of 19.7 million MT.

23 October 2013

4 minute read

Oceania

The longer term weather forecasts are for normal rainfall and temperatures through the first quarter of 2014. Milk prices are forecast to reach a record $NZ 8.60/kilogram of milk solids in for the first half of 2014 which will encourage farmers to produce as much as they can in the first half of the year. Slightly higher cow numbers (5.1 million versus 5.0 million) going into the second half of the year should ensure milk supply continues to grow.

The drought that took place in the first half of 2013 is over. Farmers have capitalized on good cow condition and a mild winter to make an excellent start to the 2013/2014 production year. This should result in the milk supply for the July to December 2013 period topping the record achieved during the same period in 2012. The influence of the drought means that production in 2013 is expected to be 4.3 per cent less than 2012.

The milk supply in 2014 is forecast to be processed into a total of 3.19 million MT of products, a 4per cent increase on the total of 3.07million MT estimated for 2013. Whole milk powder (WMP) remains the key commodity representing around 40 per cent of total production. In 2014 WMP production is forecast at 1.3 million MT up two per cent from the 2013 total of 1.275 million MT. Even though exports for the 2013 year to August were 86,000 MT behind 2012 it is expected the extremely high financial margins for WMP which have opened up since April 2013 and the extra production capacity now commissioned will see that gap closed by year end. The tight global supply is expected to last until the end of Q1, 2014. This should set the scene for the forecast WMP production increase in 2014.

Cheese production is likely to be stable at just on 320,000 MT in both 2014 and 2013. However there are signs that in the future cheese will assume greater importance in the product mix. New production technologies and new markets opening up in the developing countries are providing a platform for future growth.

Skim milk powder (SMP) and cream products (butter and anhydrous milk fat) are likely to stage a production upswing in 2014 at 420,000 MT (eight per cent up) and 525,000 MT (four per cent up) respectively.

Exports for 2014 look set to show a distinct increase over 2013, of 5.8 per cent, to reach 2.9 million MT. For 2013 it is now estimated 2.75 million MT of product will be exported, down 2.4 per cent from 2012, which is the result of the drought induced reduction to the milk supply. To some extent the 2014 export performance is likely to benefit from an anticipated inventory buildup of WMP at 2013 year end which will be wound back in the first half of 2014.

Even though Infant Milk Formula (IMF) exports at $US 320million in 2012 comprised only three percent of total dairy export value it is a high value product and often seen as a model for the future for dairy processing in NZ. Over the last decade exports have expanded from 12,000 MT to 33,000 MT in 2012 and the price has appreciated from $US 3.00/kilogram to over $US 9.50/kilogram. The price increase has attracted many new players over the last few years. The growth in the Chinese market seems to be a big part of this. However the once lightly regulated Chinese market is undergoing a significant restructure. New regulations, increased testing, and better border control are being assembled. In addition the Chinese Government is moving briskly to rationalize and strengthen the domestic suppliers to increase their market share.

New Zealand suppliers’ share of the IMF market in China was disrupted during August and September by the whey protein concentrate contamination issue sustained by Fonterra. The contamination by bacteria was found in the end not to be a food safety issue. However in the interim an extensive product recall was instituted which affected IMF products in several markets. The negative publicity played badly on the NZ brand image in China. However it is likely this will pass and the new regulations will likely benefit reputable NZ producers of IMF in the future.