Winter grazing warning
Every time people from overseas see photographs of cows up to their hocks in mud it's bad for New Zealand.
Speaking to Dairy News from the Fieldays where MPI unveiled its latest Situation and Outlook for the Primary Industries (SOPI) report, Smith noted that while volatility may continue to be the order of the day, a return to the days of better prices are coming.
The SOPI report predicts that in the year from 1 July 2024 to 30 June 2025, export returns for dairy will drop from last year’s high of $26 billion to $24.1 billion – a drop of 7%. Cheese, infant formula and casein are three product lines which according to the SOPI report will take several years to get back 2023 levels; SMP will be a bit better and WMP will quickly bounce back.
Butter and AMF are the category that seems is the least affected. Overall, it will be 2026 before dairy export earnings are back to 2023 levels, but in saying that, it is valid to point out that 2023 was an exceptionally good year for the dairy sector.
One of the challenges for dairy is its dependence on the Chinese market which takes 34% or $8.158 billion of our dairy products – the next biggest at just 5% are the US and Australia. Ray Smith says China had dropped to a 3.5% growth rate but says it’s now up to 5.5%.
“But I don’t think it will get back to those historical highs we have seen. While consumer confidence is still weak, I think it’s coming back and that demand will be there in the next year or two. It’s such a big market with more people coming into the middle classes that you have just got to believe there is demand for our protein there,” he says.
The other factor to emerge in the SOPI report regarding China is that milk production there rose by 6.6%, driven by what amounts to government subsidies, which has fuelled expansion of dairy cattle herds and raw milk production in recent years.
Perhaps worth noting is the fact that milk production in Asia now sits at around 446.9 million tonnes – up 2.7%. It is this overall rise in milk production that led to the decline in global dairy prices in 2023, notes SOPI.
The report says that the slower pace of imports into China is also driven by a drop in demand from hotels restaurant and institutions.
But the China story is not all bad news, with predictions by MPI that demand for NZ dairy products there is likely to remain strong in the short to medium term as economic growth picks up. However, there is still a sense that volatility will remain the norm for a while, and this is borne out by the ups and downs in the farmgate milk price predictions. Smith says despite this volatility, MPI is predicting an $8.50/kgMS payout for 2024 which will no doubt be welcomed by dairy farmers.
The Big Picture
The dairy industry remains NZ’s single largest primary export earner, accounting for 50% of our export dollars, double that of meat and wool with horticulture coming a reasonably close third, having displaced forestry.
MPI produces the SOPI report – a quarterly snapshot of the market outlook for the primary sector. The June report released at Fieldays forecasts that overall export returns for the next year will be down by 5% to $54.5 billion on last year’s record $57.4 billion. But MPI expects things to get better in a year or more and return to the highs of 2023.
It says farm input costs will remain elevated in 2024/25 putting a squeeze on farm profitability and farmers will need to keep controlling costs in the coming season. But it adds that some help for farmers has come with the 7% drop in fertiliser prices.
