Rabobank cuts loan rate
Rabobank New Zealand will reduce the variable base rate on its rural loans by 0.5%, effective from 16 October 2024.
Producers here are fairly cautious, she said during a visit this month.
Her message of a growing world market and a slowdown in production growth in other world regions should give Kiwi farmers an element of optimism, she says.
“The outlook for milk prices for the next season are for another good solid season of milk prices here,” she told Dairy News.
“In contrast US milk prices were down in 2018 and the margins of milk price minus feed costs were down at least 15 % -- maybe closer to 20% for some farmers – and that is a downturn that the NZ farmers have not faced.”
She sees more opportunities than threats. Rabobank’s five year outlook sees the growth in demand from China, South East Asia, South America and African countries in a sense outpacing the growth in milk production.
“We are not predicting any long term deficit in milk production. If market prices prevail dairy farmers around the world will respond and increase milk production to feed these growing markets. But the outlook is really quite bright,” she says.
“Even China in January this year had record whole milk powder imports and the recent GlobalDairyTrade (GDT) auction has been positive. An almost 8% increase in NZ milk production in January and the following day the GDT auction still positive... is a sign. January was a good export month and I think February will be as well.”
The global market is becoming well balanced largely due to the slowdown in global milk production in key producing regions.
The fourth quarter of the 2018 season in the key milk producing regions of Europe, US and Oceania saw the smallest year-on-year growth in milk production probably since 2012.
“The other good news for the industry is that even a year ago – January 1, 2018 – Europe had nearly 400,000 tonnes of skim milk powder in their government stocks. Through some aggressive selling primarily in December 2018 and January 2019 they currently have less than 5000t of stock so the combination of no large overhanging stocks in the market and the slowdown in growth poises the market for recovery.
“That recovery means stronger milk prices than the global market has seen in the last couple of years, although we don’t see the market being so strong that we get the prices we experienced in 2013-14. The key reason we don’t see the industry returning to those price levels is that the European community, which is the largest milk producing bloc in the world, no longer is impeded by a quota system.
“Their quotas were eliminated in the spring of 2015 and since that time they have added more processing capacity particularly in milk powders. They will be in a position to produce more skim milk powder or whole milk powder if market conditions warrant it.”
Europe’s production has been hit by weather. In the US the challenge has been more on the margins – milk price minus feed costs.
“The margins in 2018 were about 15% or more lower than the prior year. This has had a negative impact particularly on smaller farms with fewer than 150 cows: we have seen an increase in exits by farms of that size.
“Year-on-year milk production in the US in the fourth quarter of 2018 was only up a 0.5%. Typically US milk production increases 1.5% so only being up a 0.5% is like being down 1%.
“We also see negative profitability in the US affecting the US dairy herd which has dropped about 60,000 head since mid 2018. So the dairy herd in the first half of 2019 versus the prior year will be down about 0.5%. Even if cow production is up 1.5% a good case scenario would be milk production would only be up 1%.”
Ledman says this isn’t necessarily a long term trend.
“The historical growth rate is much closer to 1.5% and the US will over time return to that growth rate.
“In Europe the Netherlands, which is one of eight top milk producing countries within the EU, has environmental constraints they must adhere to. They overpopulated their country with dairy cows post quota and they have to redo some cow numbers to bring their herd in line with environmental numbers. We see some of the growth in the EU tempered by some of those conditions.”
Butterfat is king
A big trend in the US over the last five years has been dairy farmers breeding for butterfat.
Historically the average butterfat content in producer milk was about 3.68%. But with strong butterfat prices over the last five years — at least US$5000 per tonne — that is signaling dairy farmers to produce more fat.
“We have seen breeding changes that result in the average butterfat content in US milk being close to 3.9%,” says Ledman.
And increasingly the US milk production is going to exports – up from 2% of total production in 2000 to 16% in 2018. About half the average annual increase in production of 1.5% goes to exports.
“Mexico to the US is like China is to New Zealand. Mexico is by far the largest market for dairy products: about a third of the milk equivalent of dairy exports from the US go to Mexico. That is driven by skim milk powder exports to Mexico.”
Fake milk not scary
Plant-based alternatives to milk are a growing competitor for share of consumer choice, but they aren’t a big threat at this time, says Ledman.
But they’re doing a great job in marketing and packaging, she says.
“So there is probably some learnings the dairy industry could take from the plant-based beverages,” she says.
“But the fluid milk business in the US is still about 20% of total US milk production -- at least 90 million tonnes going into the fluid bottle.”
It has been declining by about 2% annually and the plant-based beverage category has been growing by about 8% a year but from a small base. That category includes soya and almond milk but in the US almond milk is the number-one growing alternative ‘milk’.
“But if we said it continued to grow by 8%, those lines would cross... between 2035 and 2040. That illustrates how small the plant-based beverages are at this time.”
