Output up as earnings slip

Rabobank’s latest agribusiness monthly report shows the production increased 5.4 per cent in the European Union in the past three months, while production has grown 0.3 per cent in the US and dropped 3.3 per cent in Australia during the same period.

New Zealand, which accounts for 38 per cent of produce sold on Global Dairy Trade, has had a mild summer and continues to produce huge volumes of milk.

New Zealand was expected to drop production on the back of falling commodity prices, but Fonterra reported just a 2 per cent fall year on year in its March milk collections.

The European Union is the second biggest trader on Global Dairy Trade, accounting for 32 per cent of the produce.

EU production has accelerated post milk quota removal on April1 last year. Three quarters of the growth has come from five countries, with Ireland and the Netherlands contributing to 50 per cent of the production growth.

Meanwhile, there are no signs of Russia lifting its ban on imported produce.

Dairy Australia analyst John Droppert said India was the biggest dairy producer in the world but was a “swing” producer.

“If they have an oversupply they will sell, if their production drops they will import,” he said.

Mr Droppert said demand in Africa and the Middle East was more elastic and they only bought when the prices were down.

He said Japan was a good news story.

“Their local production is falling as farmers are retiring and not being replaced.”

EU

MILK production in the European Union has grown since the quota system was abolished in April last year.

Rabobank’s latest Agribusiness Monthly reports the “post-quota surge in milk production has continued into 2016 with January volumes up 4.4 per cent.”

Growth for the past three months was 5.4 per cent.”

Commonwealth Bank agri-commodities analyst Tobin Gorey said the EU was “swimming in milk.”

“The EU milk is not being exported to Russia (due to the import ban) and the quota system has been deregulated,” Mr Gorey said.

He said the countries that were more efficient had ramped up production

“There is also a group that are not efficient, but they will not be there long term so they will raise their output in the short term,” he said.

“They’re not worried about maintenance so their cost of production is cheap.”

Dairy Australia analyst John Droppert said Ireland and the Netherlands had been really constrained by the quotas but had now built new processing plants.

“There has been huge growthout of the EU and Eastern Europe with the UK falling back because the milk price is lower there,” Mr Droppert said.

“The EU’s growth has been 5 per cent year on year, but they can no longer export to Russia, so a lot is ending up in Asia and China.”

He said although the milk price had dropped a lot of farmers were not reducing their production.

“A lot of farmers are on longer term contracts and some of the bigger co-operatives have protected them from the export market.”

New Zealand

A PASTURE “nirvana” in New Zealand has led to milk production falling at a slower rate than forecast.

Fonterra has reported a two per cent fall in its New Zealand March milk collection, in comparison to the same time last year.

In Australia, Fonterra’s March milk collection decreased 7 per cent year-on-year.

Dairy Companies Association of New Zealand reported NZ milk solids production in the month of March fell 1.7 per cent year on year.

Commonwealth Bank agri-commodity analyst Tobin Gorey said the fall was welcome, but less than world markets would like to see.

He said the fall was below forecasts of a 5 or 6 per cent drop made last year, but farmers were responding to the lower milk price by curbing output.

“People thought New Zealand would cut production quicker than they have, but the summer weather has been very kind to them,” Mr Gorey said.

“They’ve had a pasture nirvana and free feed for their cows, so they have kept them producing.”

Mr Gorey said New Zealand consumed very little of its milk domestically, with most of it going for export.

“They say the best cure for low milk price is low milk price.”

Dairy Australia analyst John Droppert said last year there were forecasts of New Zealand’s milk production dropping by 5 to 10 per cent, but that has now been revised down to 3 per cent.

“They had an El Nino weather pattern but had enough rain that they did not have to spend heaps on supplementary feeding.”

Mr Droppert said New Zealand exported 95 per cent of its dairy production and comprised 38 per cent of Global Dairy Trade.

Russia

RUSSIA may not return to being the second biggest buyer of global dairy products if it lifts its import ban.

Russia banned agricultural imports from Australia, Canada, Norway, the US and the 28 EU countries in August 2014 as tensions rose over the shooting down of a passenger plane over Ukraine.

The country previously imported 600,000 tonnes of dairy produce.

Dairy Australia analyst John Droppert said the industry was expecting the ban to go through until Russia’s elections in 2018.

He said there was no internal pressure on President Vladimir Putin to lift the ban.

“Local dairy producers are quite supportive of the government,” Mr Droppert said.

“Consumers are quite happy with the cheese substitutes they’re eating and even if the ban was lifted locals could not afford to buy imported cheese.”

China

CHINA has slowly re-entered the market after being quiet for the past few years.

China went from being a big player in the global market in 2014, to being very quiet as its inventories built up.

Dairy Australia analyst John Droppert said China had worked its way through a lot of the inventory.

“In January and February they were buying a little bit more, but volumes as still down on what they were,” he said.