New Zealand Milk Production Update – Apr ’16
Executive Summary New Zealand milk production figures provided by Dairy Companies Association of New Zealand (DCANZ) were recently updated with values spanning through Mar ’16. Highlights from the updated report include: • New Zealand milk production declined on a YOY basis for the seventh time in the past eight months during Mar ’16, finishing 0.8% below the previous year. • Concerns of a significant El Niño event negatively affecting pasture conditions have largely been reduced and although producers have reduced stocking rates and supplementary feeding, YTD milk production declines are unlikely to reach Fonterra’s projection of 4.0%. • ’15-’16 New Zealand Farmgate Milk Price projections were revised downward to a nine year low however the recently announced $0.20/kgMS cash dividend set to be paid in April is expected to provide temporary relief to producers. Additional Report Details According to DCANZ, Mar ’16 New Zealand milk production declined on a YOY basis for the seventh time in the past eight month, finishing 0.8% below the previous year. Milk production also continued to decrease seasonally, finishing 17.4% lower MOM on a daily average basis. The MOM decline was consistent with the five year average February – March seasonal decline of 17.6%. Despite warnings of an El Niño event potentially resulting in dry conditions across New Zealand, better than anticipated growing conditions have resulted in only moderate YOY declines in milk production over recent months. ’15-’16 YTD New Zealand milk production is down just 2.0% throughout the first ten months of the production season, significantly less than Fonterra’s Mar ’16 projected annual YOY decline in milk collections of 4.0%. Reduced stocking rates and supplementary feeding is expected to result in additional YOY declines throughout the duration of the ’15-’16 New Zealand production season according to Fonterra, however Fonterra collections would need to decline by approximately 9.5% YOY over the final two months of the ’15-’16 production season to reach the projected 4.0% annual decline. Timely rainfall was experienced across the majority of New Zealand during the early months of 2016, reducing seasonally higher than average soil moisture deficits experienced in late 2015. The National Oceanic and Atmospheric Administration Oceanic Niño Index and Multivariate ENSO Index, measures used to identify the intensity of El Niño events, each declined off of 17 year highs experienced during late 2015 over recent months. Improving weather conditions contributed to a sharp YOY decline in New Zealand cow & heifer slaughter rates throughout the past several months. Slaughter rates have declined by 16.2% YOY in total from Dec ’15 – Mar ’16, while Mar ’16 slaughter rates finished 5.9% below the previous year. ’15-’16 YTD slaughter rates remain up 0.2% throughout the first ten months of the production season however, historically, nearly a third of total annual New Zealand cow & heifer slaughter occurs over the final two months of the production season as production continues to decline seasonally throughout the Southern Hemisphere winter months. Slaughter rates remain higher YTD as New Zealand Farmgate Milk Prices continue to trend lower. In early Mar ’16, Fonterra revised its forecasted ’15-’16 Farmgate Milk Price lower by $0.25/kgMS, or 6.0%, to $3.90/kgMS, a nine year low. The current price forecast would be $0.50/kgMS, or 11.4%, below the ’14-’15 pay price and $1.95/kgMS, or 33.3%, below the ten year average price. The Fonterra forecasted ’15-’16 Farmgate Milk Price has been revised a total of $0.70/kgMS lower throughout the early months of 2016 as oversupplied global markets have been slow to respond with production cuts, particularly within the EU-28. Fonterra announced that it would bring forward cash a $0.20/kgMS cash dividend to producers paid in April, with two additional $0.10/kgMS payments being made in May and August to help smooth out cash flow deficits experienced due to low farmgate milk prices. In addition to lower Farmgate Milk Prices, weaker export demand for New Zealand dairy products has also become a concern for New Zealand dairy producers over recent months. New Zealand dairy exports finished 5.8% higher on a YOY basis during Feb ’16, however ’15-’16 YTD export volumes remain down 7.1% YOY throughout the first two thirds of the production season.