New Zealand Dairy Sector Begins Season with Strong Output
Source: DairyNews.today
New Zealand’s dairy industry has kicked off the season with robust production momentum, anticipated to contribute significantly to global supply levels, reports Westpac NZ. Early-season growth has been bolstered by strong domestic output, though offset by a mixed international supply landscape.
In the northern hemisphere, dairy production has faced challenges, including a dip in output; however, signs of recovery are emerging. Chinese dairy production rebounded in August, and the U.S. dairy sector is slowly recovering following disruptions fr om the avian flu outbreak. Europe continues to grapple with the bluetongue virus, constraining the region’s supply and maintaining pressure on the global market.
Westpac NZ has responded to these dynamics by adjusting its farmgate milk price forecast for the season, raising it from NZ$8.70 (US$5.52) per kg of milk solids to NZ$9.00 (US$5.71). This upward revision reflects stronger-than-expected results in recent dairy auctions, wh ere global dairy prices have held firm. Notably, whole milk powder (WMP) and skim milk powder (SMP) prices have stabilized near long-term averages, while milk fats have reached record highs.
Global Dairy Price Trends and Forecast
The most recent Global Dairy Trade auction, held on September 17, reported a modest but positive overall increase of 0.8%. Westpac cautions that while the milk price forecast suggests some pullback in prices by season’s end, the trend indicates resilience in the market. The auction saw WMP rise by 1.5% to an average of US$3,448 per metric ton, with SMP prices up by 2.2%, averaging US$2,809 per metric ton. Cheddar and mozzarella led the auction’s gains, with mozzarella experiencing a notable 4.5% jump, reaching an average of US$5,351 per metric ton.
Shifting Demand for Heifers in China
Meanwhile, Rabobank reports that Chinese demand for dairy heifers is softening due to a current oversupply in domestic raw milk production. This shift represents a downturn in what has historically been a lucrative export market for Australian dairy farmers, driven by China’s expansion of its dairy herd in recent years.
“A critical juncture has emerged for China’s dairy industry, as oversupply pressures weigh on local milk prices and farm profitability,” explains Rabobank analyst Harvey. The bank’s latest insights suggest that, while the Chinese market remains vital, trade for dairy heifers could slow in the near term. Nevertheless, recent governmental measures aimed at supporting local dairy farmers – such as loans and consumer vouchers – have buoyed investor sentiment. China Mengniu Dairy Co.’s shares, for example, soared by as much as 25% in Hong Kong after the announcement.
Fonterra’s Financial Performance and Global Market Impact
New Zealand’s dairy cooperative giant Fonterra reported a 25% decline in fiscal 2024 profits, primarily due to weaker earnings from its ingredients division, compounded by volatile demand from key import markets. While the cooperative’s food service and consumer segments benefited from increased sales volumes, these gains were countered by reduced margins in the ingredients sector as milk powder prices lagged behind last year’s highs. Fonterra’s sales and import volumes into China, a major market, were also impacted by rising local fresh milk production, contributing to decreased demand for imported dairy ingredients.
In the U.K., the Agriculture and Horticulture Development Board (AHDB) projects Great Britain’s milk production for the 2024/2025 season at 12.28 billion liters, down 0.3% from the previous year. The U.K.’s milking herd size has also decreased slightly, with the herd standing at 1.61 million head as of July 1, 2024, underscoring a continuing trend of marginal contraction.
As the dairy season unfolds, New Zealand’s position as a key supplier in the global dairy market will be influenced by both domestic production strength and ongoing supply factors worldwide. The sector remains poised to adapt to shifting demand, while leading industry players such as Fonterra and Westpac monitor market conditions to optimize forecasts and strategies.
Westpac NZ has responded to these dynamics by adjusting its farmgate milk price forecast for the season, raising it from NZ$8.70 (US$5.52) per kg of milk solids to NZ$9.00 (US$5.71). This upward revision reflects stronger-than-expected results in recent dairy auctions, wh ere global dairy prices have held firm. Notably, whole milk powder (WMP) and skim milk powder (SMP) prices have stabilized near long-term averages, while milk fats have reached record highs.
Global Dairy Price Trends and Forecast
The most recent Global Dairy Trade auction, held on September 17, reported a modest but positive overall increase of 0.8%. Westpac cautions that while the milk price forecast suggests some pullback in prices by season’s end, the trend indicates resilience in the market. The auction saw WMP rise by 1.5% to an average of US$3,448 per metric ton, with SMP prices up by 2.2%, averaging US$2,809 per metric ton. Cheddar and mozzarella led the auction’s gains, with mozzarella experiencing a notable 4.5% jump, reaching an average of US$5,351 per metric ton.
Shifting Demand for Heifers in China
Meanwhile, Rabobank reports that Chinese demand for dairy heifers is softening due to a current oversupply in domestic raw milk production. This shift represents a downturn in what has historically been a lucrative export market for Australian dairy farmers, driven by China’s expansion of its dairy herd in recent years.
“A critical juncture has emerged for China’s dairy industry, as oversupply pressures weigh on local milk prices and farm profitability,” explains Rabobank analyst Harvey. The bank’s latest insights suggest that, while the Chinese market remains vital, trade for dairy heifers could slow in the near term. Nevertheless, recent governmental measures aimed at supporting local dairy farmers – such as loans and consumer vouchers – have buoyed investor sentiment. China Mengniu Dairy Co.’s shares, for example, soared by as much as 25% in Hong Kong after the announcement.
Fonterra’s Financial Performance and Global Market Impact
New Zealand’s dairy cooperative giant Fonterra reported a 25% decline in fiscal 2024 profits, primarily due to weaker earnings from its ingredients division, compounded by volatile demand from key import markets. While the cooperative’s food service and consumer segments benefited from increased sales volumes, these gains were countered by reduced margins in the ingredients sector as milk powder prices lagged behind last year’s highs. Fonterra’s sales and import volumes into China, a major market, were also impacted by rising local fresh milk production, contributing to decreased demand for imported dairy ingredients.
In the U.K., the Agriculture and Horticulture Development Board (AHDB) projects Great Britain’s milk production for the 2024/2025 season at 12.28 billion liters, down 0.3% from the previous year. The U.K.’s milking herd size has also decreased slightly, with the herd standing at 1.61 million head as of July 1, 2024, underscoring a continuing trend of marginal contraction.
As the dairy season unfolds, New Zealand’s position as a key supplier in the global dairy market will be influenced by both domestic production strength and ongoing supply factors worldwide. The sector remains poised to adapt to shifting demand, while leading industry players such as Fonterra and Westpac monitor market conditions to optimize forecasts and strategies.
