Cotton mills aggrieved at the 21% jump in prices of the
fibre this year should spare a thought for dairy buyers.
Prices at GlobalDairyTrade, the benchmark auction of physical
dairy products, soared 14.8% on Tuesday – posting a five-year high and taking their
gain so far in 2013 to 38%, making them one of the top-performing assets.
They have handsomely beaten cotton, or indeed natural gas, the
second-best performing of the major listed commodities with a 15% rise.
Dairy has also outstripped the Dow Jones Industrial Average,
up 10%, and the 20% jump in Tokyo shares (which for foreign investors has been
offset in part by the yen weakness which has fuelled it).
Highest since 2007
The gain at GlobalDairyTrade - twice-monthly auctions run by
New Zealand's Fonterra, the biggest dairy exporter – took prices to their
highest since December 2007.
The jump reflected concerns over the impact of in New
Zealand, the top dairy exporting country, of drought which has been billed as
the most widespread in 30 years, and which could cost the country's economy NZ$2bn.
The whole of North Island was on Friday declared a drought
While statistics revealed New Zealand milk output continuing to grow in January, extending a record of unbroken year-on-year output in
monthly data stretching back to 2010, production is expected to show a sharp
drop-off in February thanks to the decline in pasture, and expense of
'Drought has increased severely'
"Since early February the drought has increased severely and
the area has expanded much further south," analysts at consultancy Agrifax
"Over the past month pasture growth rates have virtually
While New Zealand did receive widespread rain at the
weekend, "the quantities that have fallen so far have been very small and will
do little to revive pastures in the drought-struck region", Agrifax said.
And even if pastures do recover, milk output will take time to recover, with farmers having culled many animals to save on feed - dairy cow slaughter rates so far in 2012-13 are 45% above the five-year average - and with concerns over the impact of drought on conception rates potentially hampering efforts to rebuild herds next season.
The drought has come at a time when "people may not have had
enough coverage" of dairy products, Dave Kurzawski, senior broker at FCStone's
Chicago-based dairy division, told Agrimoney.com.
"It wasn't only the drought that has concerned people, but
the uncertainty over what it means for dairy output, and how much production
will decline at the end of what has been a record season.
"That has caused them to reassess what they have covered or
Meanwhile, prospects for the northern hemisphere, which is
approaching a seasonal ramp-up in output, are weak too, with co-operative FrieslandCampina
last week forecasting a decline in Western European output in the first half of
the year, while the US foresees only a small rise in production in 2013.
"There are still many farms in the western US grappling with
drought," Mr Kurzawski said.
Tuesday's rally in GlobalDairyTrade prices - which have now rebounded
70% from a mid-July low - was led by whole milk powder, which soared 21% to an
average of $5,116 a tonne, the highest on records going back to 1999.
Fonterra halved to 5,500 tonnes the volume of product on
offer, a cut which comes at a time of strong demand from China, a major trading
"Chinese demand for whole milk powder is voracious, and New
Zealand has supplied nearly all of Chinese WMP imports," the US-based Milk
Producers Council said.
Prices of anhydrous milk far were also particularly strong,