Wednesday, 30 September 2020 12:55

Is dairying still in the driver’s seat?

Written by  Nicola Shadbolt, Professor of Farm and Agribusiness Management at Massey University
Nicola Shadbolt says the milk price is the result of a delicate balance between supply and demand, and predicting both is always difficult. Nicola Shadbolt says the milk price is the result of a delicate balance between supply and demand, and predicting both is always difficult.

The IFCN (International Farm Comparison Network in dairying) has been around for over 20 years but this year due to Covid-19 it got a lot more active. 

The absolute benefit of being unable to travel for the networkers in IFCN this year has been the fact that our contact has not been restricted to the one annual conference. 

We met weekly from March up to the conference and are meeting monthly still, comparing what is happening in our respective countries, what farmers are coping with, how supply has been impacted and how consumers, government and markets are reacting. 

It has been very interesting to hear the varying responses and recoveries at both farm and consumer levels from across the network. Last week the research networkers were able to join the IFCN supporters for their annual conference, which resulted in over 600 dairy people online sharing their views – researchers, farm input firms, farmers, processors from across the world.  You can follow their output on https://www.linkedin.com/company/ifcn/.

Back in June after the annual conference of the IFCN that was held, of course, on Zoom, I posted what I saw as a complex jigsaw of events underscored by an increased use and recognition of dairy nutrients in the home. Since then lockdown constraints have lifted in many countries and dairy has settled into a more familiar rhythm. 

As is always the case, the price we get for our milk is the result of a delicate balance between supply and demand, and predicting both is always difficult. On top of this, only 7-9% of milk is traded globally so in such a thinly traded market, price volatility is common.

Most countries shared a sharp uplift in retail demand under lockdown, with many networkers sharing personal stories like ‘am doing so much baking, using more butter than ever!’ However, some product sales did not increase and were also hit by the sharp decrease in food service demand; high end cheeses struggled to sell, people weren’t going out and they weren’t entertaining either, this speciality milk was dumped or diverted to fresh milk sales. 

Other media stories of farmers dumping milk were due to processors not having the ability to switch quickly to the smaller packaging required for retail sales, a similar issue arose in NZ with flour. The demand from food service varied from country to country, from those where food delivery through lockdown saw increases in cheese sales on pizzas to those where the absence of cafes led to a decrease in liquid milk sales, not always matched by the increasing demand in retail.

Supply looked as though it was going to be compromised at first as some northern hemisphere countries were asking farmers to reduce production just as their spring calving cows were heading to peak production. Those countries are still showing signs of diminished supply this year, but others are not and, with higher milk prices, are increasing supply. Both NZ and Australia have had mild winters and good calving weather so global supply looks set for a reasonable year.

As the impact of Covid-19 begins to unfold, the demand dynamic gets more complicated. In countries like India where milk consumption is very closely related to income levels, decreases in demand are challenging their ability to maintain an equilibrium of supply and demand, surplus milk being turned into milk powder.

In Russia, income uncertainty has resulted in a drop in cheese consumption with several small cheese factories closing and imports decreasing. However, the emphasis on health continues to drive demand for dairy nutrients, maintaining prices as reflected in the futures markets. Yet the analysts persist in forecasting a very different future to the markets, this anomaly is a first for me. Is it that analysts are just more pessimistic or that the markets have got it wrong? Only time will tell. Another first is that oil and milk prices have got divorced, or is it just a temporary separation? Again, only time will tell.

At the IFCN supporters’ conference they asked the 600+ participants what the dairy demand in 2021 might be. The results are interesting, an almost equal split between an increase and a decrease in demand. Historically demand has been growing at about 2% a year. This projection would be for a lower amount, on average. Again, only time will tell.

• Nicola Shadbolt is Professor of Farm and Agribusiness Management at Massey University and a former Fonterra director.

More like this

Focus on farm environment plans

Massey University is cashing in on the fact that most farmers need to have farm environment plans by 2025 as part of the Government’s new freshwater regulations.

Top student off to co-op

Massey University's top agricultural student for 2020 is off to join Fonterra and continue his interest and passion for the dairy industry.

Featured

Good growth year for Claas

While many sectors of the agricultural machinery were hit by the ravages of Covid-19, the effects of the pandemic did not prevent the privately-owned Claas Group from enjoying a 3.7% increase in sales during 2020.

Green machine frugal on fuel

According to the industry respected independent DLG PowerMix test, John Deere appears to be the best choice of tractor for transport applications with its new 7R330 model.

 

App takes pressure off

TRS Tyre & Wheel, owned by Trelleborg Wheel Systems, has introduced the TLC Plus App to the New Zealand market.

New MF 5S series arrives

Just before Christmas, Massey Ferguson quietly released details of the successor to its popular MF 5700S range in the shape of the new 5S Series.

National

Machinery & Products

Kubota ROPS tractors here

Kubota New Zealand product specialist Shaun Monteith says Rollover Protective Structure (ROPS) tractors make up 30% of all tractors in…

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Friends?

OPINION: After years of fighting over farming, freshwater and sustainability Federated Farmers and Fish & Game are trying to kiss…

Water donation?

OPINION: Fears of a summer without a daily swim have been doused in Tangiteroria, near Whangarei, after Fonterra Kauri filled…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter