Global demand for more milk

However, increased production out of Europe in the coming months may cause some price volatility.

Speaking at the co-op’s half-year result announcement two weeks ago, Fonterra chief executive Theo Spierings noted demand from China, Asia and Latin America was strong.

Imports into China were up 13% over the last 12 months; between October and December 2017, imports were up 16%.

“We are seeing double digit growth in China; a couple of years ago there was a different picture -- only single digit growth,” he says.

Imports into Asia, normally up 2-3%, were up 4% in the last 12 months; Latin America was up 5%.

Spierings says everyone expected South America to become an exporter; but the region still remains a net importer.

“Which only balances out the fact that Russia is still closed (trade embargo) and we don’t see any change anytime soon,” he says.

On the production side, there is only moderate growth: US was up 1% in the last 12 months and NZ only 1%, but milk production dropped sharply between October and December last year.

In Europe, production has lifted in recent months because of high prices but Spierings says milk prices are tumbling.

The current spot price for milk in Europe is 20 Euro cents, versus a normal price of about 40 Euro cents.

He says extra milk out of Europe will end up in the commodities market, impacting the price of milk powders.

 “That’s something we must watch out for,” he says.

A world beater

Fonterra chief executive Theo Spierings says the total payout made to NZ farmers is the highest in the world.

Spierings says when China came into the picture about 2007, NZ assumed a much more prominent role in the global market.

“There was much more demand for NZ products into China,” he says.

“Milk prices in the US and the EU are falling but in NZ prices are rising; that’s positive news.

“The total NZ payout is the highest in the world, which is good for the farmers.”