Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
Christchurch-based Pita Alexander says the present downturn is the worst he’s seen in his 60 years in the business, but while the situation is still dire for the sheep sector, there are positive signs for dairy farmers.
He says the recent increases in the Global Dairy Trade (GDT) and the fact that predictions for the farmgate milk price are moving up are positive.
“However, the reality is that the dairy farmers need a farmgate milk price of $9/kgMS,” he says.
Alexander says the challenge for many dairy farmers – especially young ones – is that they have never experienced a downturn like this one, whereas it’s more likely sheep and beef farmers will have. But he says even though dairy farmers have four times more debt than their sheep and beef colleagues, they have been able to handle this better because it appears to have lasted only one year.
“Farmers are resilient and can handle one bad year, but two years in a row with low returns and higher input costs is another thing,” he says.
One of the problems for NZ, says Pita Alexander, is the flat state of the Chinese market, which is by far the biggest market for dairy – taking 35% of our exports. The next biggest markets, at just 5%, are Australia, the USA and Indonesia. But Alexander says we can’t blame China because it is grappling with its own internal economic problems. On top of that, domestic dairy production in China has risen.
He says even with the upturn in the dairy industry, farmers still need to be prudent with their spending and a downcycle is not a time for making principal payments on bank loans or helping family financially. He says there is no substitute for accessing a top-class farm advisor to ensure good decisions are made.
