By STUART DAVISON
New season milk is flowing in New Zealand, calving is almost done and before you know it, mating will be top of the order.
While farmers are flat out getting milk flowing, the rest of the global dairy industry spends the time from August through September trying to determine what global milk production is likely to be. It is a tough time to get a gauge on which way the balance is leaning.
There’s not enough data on milk production out of New Zealand, on the way towards peak production, to lodge a safe bet.
This at the same time that the European Union comes down from its peak, with hard data slow to appear, shaping the other side of the supply story. In the current market, the United States and Argentina must also be looked into.
This year, EU milk production will not grow to the scale of earlier estimates, with hot and dry weather impacting milk flows, especially in France and Germany.
Milk production is expected to run behind last year’s figures on the way to Christmas, which is already being felt in skim milk powder (SMP) prices.
Even with the larger EU milk-producing countries seeing production slowing, other EU countries are going hell for leather, and pushing as much milk into the market as possible.
Ireland, Poland and Italy continue to post positive milk production figures. However, most likely not enough to make up for the lag coming from French and German dairies.
US milk production has typically tended to be consumed internally, or pushed over their northern and southern borders into Canada and Mexico, rather than further afield. Covid upset this to a point.
US farmers have lifted milk production at the same time as US demand fell substantially, so US processors have been forced to explore new export avenues over the last year. This has been mostly SMP in greater quantities into SouthEast Asia, among others, and whey into China.
Fortunately for NZ, Mexico’s demand for SMP has returned from the doldrums of the Covid-impacted demand lows, which managed to return US SMP exports to their normal destination, Mexico, allowing NZ to keep SouthEast Asian customers.
China’s demand for protein has also kept US whey in check, helping to balance out some of their production.
US milk production continues to grow, now with two years of consistent growth. July’s figure was one of the slowest at 2% growth, year on year. As with the rest of the world, the US dairy industry seems to be in a holding pattern, waiting for some indication of the direction of milk prices and thus production for the rest of the year.
Argentina’s seasons are the same as NZ, pasture-based, and heavily impacted by weather and costs, but more importantly, world prices.
Argentina’s exports have exploded over the last two years. Whole milk powder exports out of Argentina continue to grow, seemingly finding milk in every nook and crevice of the country. The question that poses itself this season is, can Argentina find more milk to process into whole milk powder? So, we wait and watch weather and export figures from Argentina.
Once the market starts to get a feel for expected milk production out of these key milk producing regions, prices begin to stabilise.
It usually ends up in calm continuation knowing that supply will meet demand, or hectic buying. The point that the market makes its mind up is generally at the end of September. It will be exciting as always.
- Stuart Davison is an NZX Dairy Analyst.
