Our dairy farmers are “cranking the handle” on production in response to high prices they are receiving for their milk.
As a result nationwide dairy production is expected to be up by 11% this current season.
Strong dairy prices have “handed the baton” to strong dairy volumes, ASB says in its economic update released today.
Volumes would be higher than normal this year as farmers had bought extra feed to increase milk production in anticipation of higher prices, ASB Bank rural economist Nathan Penny told interest.co.nz today.
New Zealand dairy farmers would probably produce 1% more milk this season than last season, which would equate to around a 9 to 10% increase in volume for Fonterra, ahead of the dairy group’s forecast for a 7.5% increase in volume, ASB says.
“Farmers are pretty motivated to get more milk out of their cows given what Fonterra is paying them,” Penny said. “If our production forecast is right, once this milk hits markets, dairy prices will come under further pressure in the tail end of the New Zealand season.”
He said whole milk powder fell to US$4,439 a tonne in Fonterra’s most recent fortnightly GlobalDairyTrade auction this month from about $5,000 in February and would probably head towards $4,000 a tonne over the next few months as the extra volumes hit the market. Prices would likely recover again after the end of the season as milk supply slowed..
“Markets plan ahead, they know that New Zealand volumes decrease at this time of year so they buy in advance. Now there is going to be more than they anticipated in the market at this time of year, so that will put downward pressure on prices,” Penny said.
Fonterra had the ability to stockpile milk powder for a few months, giving it some flexibility over when it released the extra volumes. “Eventually they have to get it out the door which means there will be that pressure on prices.”
Source: The Rural