New Zealand Dairy Industry Hits Record Production, Fuels Rising Futures Amid Global Market Trends

In July, New Zealand’s milk production hit 27.4 million kilograms of milksolids, marking a 9.2% increase compared to the same period last year. This represents the highest July production on record, exceeding the five-year rolling average by 6.2%. On a tonnage basis, production reached 310,000 tonnes, an 8.4% year-on-year (YoY) increase, signaling robust growth despite a slower start in June. With peak production months yet to come between September and November, industry observers anticipate further gains.

The NZX milk production predictor points to continued YoY increases of 1.5%, 0.7%, and 0.8% for August, September, and October, respectively. However, these projections are subject to weather conditions that could impact pasture growth, introducing potential volatility in production levels.

Globally, dairy markets delivered mixed results. U.S. milk production dropped by 0.4% in July YoY, while Argentina and Uruguay experienced sharper declines of -4.8% and -9.2%, respectively. In contrast, Australia recorded a 3.4% YoY increase in June, and European production rose by 1.3% YoY, reflecting positive growth in some key regions.

New Zealand’s dairy exports have also surged. In July, export volumes grew by 10.2% YoY, with values rising by 10.7% YoY. The total volume of exported dairy products reached 282,715 metric tonnes, led by strong performances in skim milk powder (SMP), cheese, infant formula, and casein exports. SMP exports, in particular, rebounded with a 57% YoY increase, driven by heightened demand from China and other Asian markets.

However, the picture wasn’t entirely positive. Products such as anhydrous milk fat (AMF) and butter experienced a decline in export volumes. These mixed results were reflected in recent Global Dairy Trade (GDT) events. GDT Event 361 on August 6 saw a modest 0.5% increase in the overall index, driven by gains in WMP and AMF, while SMP prices continued to face downward pressure. The subsequent GDT Pulse and GDT Event 362 on August 20 showed a strong recovery, with the index surging 5.5%, the largest increase since March 2021.

The SGX-NZX Derivatives market mirrored these positive trends. WMP futures have been on a two-month upward trajectory, with the front contract settling at $3,630 on August 30, a level not seen since December 2022. The rise in WMP prices has also buoyed Milk Price Futures, with MKPU25 settling at $8.90 on the same day. New Zealand’s SMP is trading at a premium over the European Union’s product across the futures curve, further reflecting its strong position in global markets. August 2024 saw 63,289 lots trade in the SGX-NZX Derivatives market, with WMP futures accounting for 67% of the volume.

As global dairy markets continue to evolve, stakeholders are encouraged to participate in events such as the upcoming SGX-NZX Global Dairy Seminar, scheduled for October 7-9, 2024. This seminar will provide an essential platform for industry participants to share insights, strategies, and outlooks on navigating the complexities of the global dairy landscape.

In summary, New Zealand’s record-setting production and strong export performance are positioning the country’s dairy sector for continued success, while global market volatility presents both challenges and opportunities for industry stakeholders.