Fickle worldwide weather is having an effect on milk production, NZX analyst Amy Castleton reports.
Global milk supplies look to be basically flat lining for the rest of the year as all regions grapple with weather effects. Any increase in milk production is likely to be small. This should be a positive for dairy commodity prices and therefore support milk prices this season.
New Zealand is really the least affected, dealing with just the usual seasonality rather than any exceptional weather. In its climate outlook at the end of June, NIWA was forecasting the three-month period through to September to be warmer than usual, with normal rainfall levels for most regions. The north of both the North and South Island and east of the South Island may see less rainfall than usual.
This bodes well for the winter months – drier conditions mean less damage to pastures, which should mean farms are well set up heading into spring. At this stage, normal conditions are expected in the spring, so NZ should see a relatively standard season this year. NZX’s expectations are for just a 0.4% increase on the 2018-19 season.
Australia has been considerably worse off; with the effects of drought continuing to rebound through the industry. Season to date (July-May), production is down 7.7%. Dairy Australia expects a further 3-5% fall for the 2019-20 season. A smaller herd will have an impact, as will lower availability of feed and high water costs. The Bureau of Meteorology has forecast a drier and warmer than usual three months from August to October, so any reprieve from the drought conditions is not likely any time soon.
On the other end of the scale, the United States has been experiencing extremely wet conditions. Forbes reported there has never been a wetter 12-month period on record in the lower 48 US states than over the 12 months ended June 30, 2019.
June was also the third consecutive month in which the 12-month precipitation record was broken. For the five months to May, US milk production was flat year on year. Productivity per cow has been growing, but the dairy herd has also been shrinking. Rising costs continue to push smaller farms out of the industry. It’s unlikely there will be much of a reprieve, as the wet weather also delayed corn planting. An expected poor crop will have a subsequent effect on price. The USDA is forecasting an increase of just 0.3% in US milk production this calendar year.
Europe is expected to see a small increase this calendar year. The European Commission is forecasting a 0.9% lift. The dairy herd has contracted, but cow productivity is expected to be supported by good grass quality and better availability of feed supplies.
The commission has said its forecast supply growth will be boosted by favourable weather. However, Europe experienced a heatwave at the end of June, with temperature records being broken. This is likely to have had some effect on milk supplies, whether through impacting feed or causing heat stress. This won’t be evident in official data for a few more months.
Argentina’s milk production is down 6% for the year to June, while Uruguay’s is down 9.4% year to May. South America has had uneven weather patterns – too wet in some areas and too dry in others – affecting pasture quality. Economic problems have also had an effect, with farmers struggling to manage costs and access finance due to high inflation and currency devaluation. However, milk prices are on their way up and costs are stabilising (largely due to bumper crops of corn and soybeans), which should encourage farmers to increase production through the second half of the year.
