- news, features, articles and disease information for the cattle industry


Demand To Support Prices At Mid-Way Point

18 June 2013

GLOBAL – Dairy markets have levelled after the price spike at the start of April, although a tight supply picture is expected to remain into the autumn.

Estimates of three to five months have been given before supplies rebound. The wait could be as long as it takes for Oceania’s next season to kick in, which rests on rain and growing conditions.

This is according to analysts at the US Dairy Export Council and the Food and Agriculture Organisation of the United Nations who, as part of their mid-year reports have said they expect prices to hover ‘at or near current levels’ and for higher farmgate milk prices to spur farmers to produce more.


Such an outlook follows Fonterra announcements of an opening forecast milk price of NZ$7.00 per kg milksolids for the 2013/14 season, an increase of $1.20.

After a harsh drought that caused North Island farmers to cull and dry off early, this comes as a huge relief for dairymen, said Dairy New Zealand CE, Tim Mackle.

“This forecast increase in payout will help them cope with that increased debt. The higher advance rate will also give farmers some extra cash early in the season when they will need it most to spend on feed and spring fertiliser,” said Mr Mackle. “We’ve calculated that the average North Island farmer has had to spend an extra $57,000 on feed this season because of the drought.”

He said that this meant an average farm loss of about $100,000 in farm income, when combined with milk production loss.

Fonterra has also revealed price increases in Australia where the 2013/14 season will open with values of AUS$5.60 per kg MS. This matches Murray Goulburn, although MG opening prices offer producers the ability to opt to take up the pre-payment of a special step-up.

Meanwhile, European processors have also offered record high payments. Friesland-Campina, amongst several others, have upped contracts 20 per cent which USDEC analysts say can only support production.

UK prices have been rising for manufacturing contracts but discontent still reigns amongst many dairymen. Notably, Muller Wiseman, First Milk and Dairy Crest have all announced price increases for the summer but this has been linked to cheese production and manufacturing pools.

Over in Ireland, industry leaders have noted increases in prices have been modest and should be reflecting Fonterra confidence. Glanbia and Kerry have offered more and Irish Farmer’s Association Dairy Committee Chairman, Kevin Kiersey, says all dairies should follow suit.

“Last week, Kerry lifted their May milk price 2.86c/l to 36.26c/l + VAT. This week, Glanbia announced a price lift of around 1.9c/l to 35.3c/l + VAT, proving our argument that current market returns fully justify a major base price increase from May,” Mr Kiersey said.

“While the announcement by Fonterra of an increased milk price to NZ$7/kg MS will undoubtedly send a strong message to New Zealand farmers, a good early season which can reverse the current tight global supply situation will require some major improvement in pasture conditions by August or September,” he added.

And while debates around market intervention and disaster insurance continue in the States, supplier conditions have been forecast as favourable which could extend the strong export performance of the dairy sector through the year.

Record export figures have been observed for NDM/Skimmed Milk Powder in April which comes as further good news for the US after a bumper 2012 for cheese.

Breaking US$1 billion last year was heralded as a huge success for the cheese manufacturing sector and the USDEC has suggested that exporters in the States will thrive this year as firm prices continue and supplies remain tight.

Further south, feed costs, dry weather and a milk quality scandal have combined to limit production, leaving export figures down.

Argentinian output is expected to be 5.6 per cent lower with Dairy Australia confirming exports from Argentina being 21 per cent lower from January to April.

Brazil is also ‘lagging behind’ last year’s output, which is expected to result in a 5.5 per cent fall in milk production for 2013. This is despite farmgate prices at a 5 year high in several states due to milk scarcity.

The supply picture has been exacerbated by a milk tampering scandal in the Rio Grande do Sul region in which bulk tankers of milk had been augmented with urea, containing formaldehyde.

This was done to maintain milk protein levels after adding water to shipments. The revelations involved the products MuMu, Italac and Líder , the final brand belonging to LBR – a considerable milk processor in Brazil.

As far as New Zealand production goes, there has been a 1.4 million ton shortfall. This equates to 160,000-200,000 tons less product available to buyers.

Furthermore, USDEC analysts say the ‘cupboard is mostly bare’ for the Kiwis who managed to increase exports while production between August and April flat lined. This surely means a low inventory ahead of the 13/14 season, USDEC analysts added.

Overall, FAO's milk output figure expects a 2.2 per cent jump to 784 million tonnes of milk equivalent - driven by growth in Asia, Latin America and the Caribbean.


Major buyers all bought well over the first quarter and into April. Russian imports rose the most, up 25 per cent and with lagging yields analysts expect this to continue.

China and Algeria rose 17 per cent and 16 per cent respectively showing the market is still expanding. Mexico has been highlighted as a potential buyer in the second half of the year as production is flat and consumption is growing.

Buyers are satisfied for near term and attention has shifted to longer term shipments. Third and fourth quarter scrutiny has brough China markets into focus, where third quarter imports tend to drop by a third in a typical year.

However, analysts say that fourth quarter buying will recover. This will partly be through import concerns around the ‘safeguard trigger’ for the China-New Zealand Free Trade Agreement. Orders in November and December are expected to get product ready for the New Year to get the tariff break before the trigger is hit.

And finally, USDEC analysts report that Japanese demand is lower as production ramps up. This will affect manufactured demand in Japan and possibly shape their export year.

Experts therefore expect to see trade increase, although only by 1.9 per cent, which the FAO has announced would be well down on the 7 per cent average seen in recent years. 

Michael Priestley

Michael Priestley
News Team - Editor

Mainly production and market stories on ruminants sector. Works closely with sustainability consultants at FAI Farms


Top image via Shutterstock

Our Sponsors


Seasonal Picks

Charismatic Cows and Beefcake Bulls