Fonterra upgrades NZ milk output hopes after rains

Milk production in New Zealand will rise by more than had been expected this season after rains eased doubts of a return of the drought which ended a run of rising output in the top exporting country.

Auckland-based Fonterra, which collects the vast majority of New Zealand milk, raised to 6.4%, from 5%, its forecast for national milk production growth in the season to the end of May.

The upgrade - which lifted by 15m kilogrammes of milk solids to 1.556bn kgMS the estimate for full-season output - comes despite a slowdown in growth in the co-operative's own milk collections last month.

Fonterra took in 210m kgMS in milk in November, a rise of 1.6% year on year, well below the rate of increase of 4.7% the group witnessed in the first five months of the season.

'Driving pasture growth'

The slowdown came amid signs of emerging dryness which had threatened pasture condition, and evoked memories of the early-2013 drought, billed as the worst in a generation, which ended a run of rising milk output.

New Zealand milk output fell in February, year on year, for the first month since late 2010.

However, "late-November rains were welcomed by farmers beginning to experience low soil moisture conditions," Fonterra said.

"More rain has come into mid-December driving pasture growth leading into the summer period."

Price factor

Fonterra added that elevated milk values were also underpinning milk output prospects, in incentivising farmers to maximise performance, even though the co-operative revealed earlier this week that it would likely not this season pay producers the full $9.00 per kgMS for milk suggested by its pricing formula.

The group blamed the pricing decision on its inability to lift beyond 70% the proportion of milk going into powder, for which values are especially strong, leaving it exposed to the relatively weak cheese and casein markets.

"While there remains a risk that dry conditions through summer will again impact milk supply, the record milk price forecast provides additional confidence that milk supply will increase above [the previous] estimate," Fonterra said.

Supply and demand

The New Zealand milk volume upgrade comes against a background of rising output in other major producing countries too, with the notable exception of Australia, where output is down 4.1% in 2013-14, up to October.

"With the exception of Australia, the key southern hemisphere exporting countries of Argentina, New Zealand and Uruguay continue to see strong year-on-year growth with weather conditions resulting in good pasture and feed growth," Fonterra said.

There is also a "continued recovery in milk production in the top four exporting countries in the northern hemisphere", although these are now in the winter months when output slows dramatically.

However, demand is rising too, underpinning a rise in prices of 52% year on year at the group's GlobalDairyTrade auctions.

"Milk production in China and Russia has been declining and this has underpinned a surge in dairy imports," Fonterra said.

Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events