INSIGHT
UPFRONT MARKET VIEW
Milk price silly season continues Words by: Stuart Davison
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he 2021-22 New Zealand dairy season started very quietly while the global market sat on their hands, unsure which way things would head after peak Northern hemisphere milk production months. This created a very muted market, with the market bearish on prices. There were five negative GDT auctions from June onwards; but in the world of dairy, it doesn’t take much news to create a fluster. This fluster really took off when the global dairy market realised that milk production would not be supported in the short term by high milk prices. Globally, buyers in overseas markets had a very strong belief that a high forecast farmgate milk price in NZ would create a mad rush to increase milk production at any cost, as has been seen in the past. However, as we keep lamenting to these same buyers, it’s not really that simple at this time of the year. Weather has the biggest call on what will positive figure and jump to the conclusion happen to milk production, something that grass will grow, there is enough that observers of NZ’s production moisture, creating a muted market, as milk system don’t easily understand. Our production struggles through wet and key production trait, pasture based milk cold spring conditions, as we’ve seen this production, also creates a black hole of year. However, when the truth is printed knowledge for those outside of by DCANZ, that the high soil moisture our systems. figure has negatively impacted milk A real knowledge gap production due to lower pasture is created, as the world production and efficacy of pasture watches one aspect of harvest, these same buyers react our weather and tries to sharply. paint it across the entire This creates what we have seen season. The perfect example over the last two months. Shock and Stuart Davison. awe at a negative milk production of this is soil moisture. High soil moisture is a dream in growth figure for August 2021, and summer, what more could you want! So it the expectation of both September and becomes a positive measure. However, that October delivering a negative number same measure in winter is a curse. No one also. All of this results in dairy commodity in their right mind likes mud, especially prices being pushed higher as the potential not when you want to grow grass in the sparsity of production becomes apparent. place that the mud has appeared. So a An unintended consequence of this positive soil moisture figure in winter is mad flip in buyers’ mentality, is milk price a negative, most of the time. However, forecasts leaping around like crazy. We’ve often international dairy buyers see this seen milk price forecasts lowered during
Weather has the biggest call on what will happen to milk production, something that observers of NZ’s production system don’t easily understand.
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early spring, before exploding following the recent GDT events. Our own NZX farm gate milk price forecasts have followed the same trajectory, however, we remain firm in the belief that it’s too early to count all the chickens and are very cautionary when we make these forecast figures public. As a farmer, this sort of posturing of inflated milk price forecasts doesn’t help with budgeting and doesn’t help with the mindset if things move the other way. As we’ve seen at the start of this season, the global dairy industry is a fast-moving game, and our local industry is fully exposed to this game. So, don’t count your chickens just yet, there is a lot of the season ahead of us all. If we look back to soil moisture as a key indicator of production, it looks like milk production through late spring and summer will be better than last season; what effect will that have on commodity prices, do you think? • Stuart Davison is an NZX Dairy Analyst.
Dairy Exporter | www.nzfarmlife.co.nz | November 2021
