$10.25/kgMS milk price now in play
A significant rise in Global Dairy Trade (GDT) auction last week has prompted one bank to lift its forecast milk price for the season to above Fonterra's mid-point.
“Back then, dairy prices fell more than 40% over the course of the year following Russia’s decision to ban EU agriculture exporters amidst tensions with the west over eastern Ukraine,” the bank’s Commodities Weekly report says.
However, global dairy flows are in a different position this time around.
“EU dairy exports to Russia have collapsed following the previous round of sanctions so another lake of milk won’t be flooding on to the market any time soon,” the report says.
“What’s more, the 2014 conflict took place at a time when global dairy production was ramping up following good weather and the lifting of European production caps, all whilst Chinese purchases were slowing.
“This time around, global dairy supply is looking tight, and the appetite among buyers is ferocious,” it says.
The report also states that any sanctions placed on Russia, as it amasses troops at the Ukrainian border, are unlikely to have a direct impact on other big New Zealand export sectors.
“NZ’s exports to Russia have recovered since their crash in the aftermath of that previous round of tensions (and sanctions) back in 2014, but it remains insignificant as an NZ export partner,” the report states.
The indirect effects of an invasion on global grain prices may be more meaningful, the report states.
It claims that Ukraine and Russia are the world’s second and third largest exporters of cereals, collectively supplying 15% of world exports.
“On its own, Ukraine supplies about 13% of global maize exports with much production taking place in eastern areas which are most vulnerable to conflict.
“The impact on global feed prices will depend on the nature of any conflict and will be difficult to predict, but Kiwi farmers would be prudent to prepare for further volatility over the months ahead.”
