New Zealand Milk Production Update – Feb ’15
According to Dairy Companies Association of New Zealand (DCANZ), Dec ’14 New Zealand milk production continued the recent trend of production growth, increasing 3.3% YOY. Monthly production of 2.81 million MT (6.2 billion lbs) set a new record high for December, although production declined 10.7% MOM seasonally on a daily average basis. New Zealand milk production typically peaks in October and gradually declines until seasonal lows are reached in the summer months. The 10.7% November – December decline in production was slightly less than the five year average 12.6% decline over the same period. New Zealand has experienced 17 consecutive months of YOY production gains, although the Nov – Dec ’14 production growth rates of 2.8% and 3.3%, respectively, were the lowest of the period. Dec ’14 production remained 8.8% higher than the three year average December production and 15.7% higher than the five year average December production. Overall, ’14-’15 YTD New Zealand milk production is up 4.1% YOY through the first seven months of the production season. Lower farmgate milk prices and the dry conditions are expected to temper future production gains. In early Dec ’14, Fonterra revised its forecasted Farmgate Milk Price for the ’14-’15 season in December from $5.30/kgMS to $4.70/kgMS, noting that falling oil prices, geopolitical uncertainty in Russia and Ukraine, and subdued demand from China has contributed to ongoing volatility and weak demand in global dairy markets. In addition, dry conditions over both islands have raised drought concerns. According to USDA AMS, conditions are more severe on the South Island where some irrigation systems are being shut down, due to low river levels. Citing the recent dry weather, Fonterra drastically cut its YOY milk production forecast in late Jan ’15 from flat to a reduction of 3.3% from this season compared to last. Jan – May ’15 production would need to decline 15.1% to match Fonterra’s projection. In comparison, the 2013 drought reduced Jan to May production by 12.1% YOY.