NZ remains lowest-cost milk producer - report
The cost of producing milk in New Zealand continues to compare favourably with other exporting regions despite a lift in production costs over the past five years.
The bank, in its latest Dairy Quarterly report, says farmgate milk cheques are improving in most of the world’s major dairy-producing regions.
Report author, Rabobank dairy analyst Emma Higgins says increased global dairy prices were largely a result of reduced global stocks of skim milk powder (SMP) and modest milk production growth.
“The global market has picked up for SMP now that EU intervention stocks are a thing of the past and we’ve seen prices for SMP shoot upwards in the latest price rally,” she says.
Robust global prices are also being supported by tepid milk growth, with this forecast to continue into next year. Across the Big 7 - the EU, the US, New Zealand, Australia, Uruguay, Argentina & Brazil – milk supply growth is expected to remain at, or below, 1% in 2020.
Higgins says despite strong global milk price signals, a low global supply growth rate was anticipated due to a combination of demand and supply factors holding back production increases.
“Dairy producers around the world have spent the last several years waiting for a return to price levels similar to those seen in 2014, however, now that we are approaching that territory, there is anxiety over the ability of consumers to withstand price increases, with much of the world either recovering from, in the midst of, or on the verge of some degree of recession,” she says.
“In addition to demand-related concerns, farmers in key milk-producing regions continue to face constraints limiting their ability to expand supply, with environmental regulation and adverse weather conditions among the key factors restricting production increases.”
Higgins says adverse weather had played a role in New Zealand’s lower milk production in the season-to-date, but that this reduced supply had helped contribute to strong pricing for New Zealand product.
“In light of the strong demand – particularly out of China – that has seen Oceaniacommodity prices increase since our last quarterly report Fonterra has twice revised up its forecast range for the 2019/20 season.
“And this has fed into the bank’s upward revision to its own full-year forecast from $7.15/kgMS to $7.60/kgMS for the 2019-20 dairy season,” she says.
