INSIGHT
UPFRONT MARKET VIEW
The cream of global milk supply Words by: Stuart Davison
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pring time. What a time to be a farmer! Grass is growing, mating is all go, silage and summer crops could be on the cards. And on top of all those exciting factors, New Zealand milk production is peaking, making for a very exciting month for NZ dairy. As one of the key dairy export regions, we often have the world’s eyes at this time of the year as the world asks “how much will NZ produce this year?” This year is even more important to the global dairy industry. The balance of global milk supply has been upset over the last month, and a market out of kilter creates volatility. I’m sure you are well aware of the sharp increase in demand from China over the last 18 months. It’s the reason the milk price is looking so dashing, but the supply side has also been running red hot as a result. European dairy farmers have from last year or lower. Considering been steadily growing milk production population growth in the EU, which was over the last few years, keeping up with 0.4% in 2020, milk production looks growing demand. The European unlikely to be able to keep up with Union has also benefited from growth in both domestic demand China’s massive draw of dairy, and exports. Simply, EU dairy with exports to China also exports will be in short growing substantially over the supply for the remainder of last 18 months. Similarly, the 2021, and most likely won’t United States has spent the last catch up until their next milk three years growing their own production peak in mid-2022. milk production, most noticeably The US dairy industry is finally Stuart Davison. over the last 18 months also. This tripping itself up. The boom in constantly increasing supply might have milk production over the last two years peaked already, and now looks set to has created a massive amount of milk, regulate a little lower. spilling over to the export market. US EU milk production in July undershot farmers have grown milk production July 2020’s production figure, with big every month for the last two years, but producers, France and Germany, both that is set to stop. Weekly numbers of seeing milk production fall sharply. Only cull cows are increasing above rates seen Spain, Italy and Ireland managed to grow over the last two years, which will reduce their milk production in July. the national herd. The US herd is now At the end of July, the EU’s total milk pegged to stop growing at some point production for the 2021 season, year to over the coming months. Yield per cow is date, was 0.5% ahead of the same period being punished by higher feed costs, and in 2020. Total milk production growth drought in parts of the West Coast. This all will most likely finish the year unchanged means milk flows should slow, with some
A positive outlook for Kiwi dairy farmers.
The US herd is now pegged to stop growing at some point over the coming months. Yield per cow is being punished by higher feed costs, and drought in parts of the West Coast.
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commentators expecting a negative growth figure sometime in the coming months. What does this mean for little old NZ? A positive outlook. If the EU and the US look to taper off, and China’s demand continues to tick along, global balance will tip towards low supply, and will be price supportive. But what does the market think currently? At the time of writing, which is between Global Dairy Trade (GDT) events in September, the market is very bullish, expecting good prices for all commodities for the rest of the season. The futures market has been running red hot, as both buyers and sellers look to hedge prices before they move higher or lower again (depends which side of the hedge you’re on…). A few people are starting to question if China can keep up their levels of demand, while others are seeing a population that can’t get their hands on proteins fast enough! At this point of the year, it’s hard to be a pessimist, and milk prices should remain supported for this season at least! • Stuart Davison is an NZX Dairy Analyst.
Dairy Exporter | www.nzfarmlife.co.nz | October 2021
