Difficult weather and high feed prices are combining to create a production shortfall that has seen the Trade Weighted Index rocket 14.8 per cent this week.
New Zealanders have borne the brunt of the weather since the New Year as a prolonged dry spell has left the entire north island in drought status, officially spreading to the south island today.
Now in the west coast districts of Grey and Buller – usually wet areas - the drought is leading to whole herds being dried off up to two months early as dry matter figures are in excess of 600 kg/ha lower than consultants recommend.
The impact on supply issues is considerable. Waikato farmers have reported up to 20 per cent yield drops and Dairy New Zealand has estimated an overall farmer income loss of NZ$13 million for February alone.
Consequently with European production also decreasing, the global dairy markets have surged this week.
Whole Milk Powder values (USD$5,116) are up 21.2 per cent on last month, beating the previous spike of March 2011.
Skimmed Milk Powder - up 7.7 per cent on last month - is now valued around the $4,050 mark.
This continues an upward trend since Christmas which has been seen across all major categories, including Cheddar which is now around USD$9,044.
Dairy market confidence is mirrored in the US following the US Department of Agriculture World Agricultural Supply and Demand Estimates report, published earlier this month.
USDA projections see a 900 million pound increase in national milk output this year - a 0.8 per centincrease on 2012.
This has eased US supply concerns at a time when Trans-Pacific Partnership talks are gathering interest attracting Thailand and Japan to consultation procedure.
This adds to a list comprising Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US. All countries are joining with a view to benefit from fairer trading systems that operate more efficiently.
International Dairy Foods Association President, Clay Hough welcomed the announcement, saying: “The addition of Japan greatly expands the scope of the TPP, and that market is a significant opportunity for U.S. dairy exports.”
However, some feel that Japan will not be able to adopt necessary concessions such as loosening market access, changing its quota system and addressing non-tariff concerns.