World Commodity Prices to be Driven by Weather?

EU - Despite a good start to the year, EU-27 milk production continues to decline more than would seasonally be expected. German milk output fell sharply in July due to a heat wave and is now 1.9 per cent below 2011/12 on a cumulative basis with Ireland 2.8 per cent below due to wet weather and poor forage quality.
calendar icon 18 October 2012
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A similar pattern is also seen in the US due to the ongoing drought and low profitability. There are concerns that current higher cull rates could impact production next milk year. Furthermore, latest forecasts show that drought conditions are likely to persist until at least the end of 2012.

In contrast, New Zealand has seen a good start to the 2012/13 milk year. This strong start could be caused by a small shift in calving patterns and/or favourable pasture growing conditions comparable to the 2011/12 season when milk production grew by 10 per cent. Industry analysts expect production in 2012/13 could grow by 4-5 per cent.

The question is; will this be realised? Climate forecasts show near normal rainfall and temperatures through the New Zealand spring, but the Fonterra Co-operative Group recently announced its farmgate milk price in 2012 will be nearly 20 per cent down on 2011.

Wholesale product prices have lifted in the UK following global price increases due to supply concerns in the major dairy product exporters, US and EU, and seasonally low production in another major exporter New Zealand.

Going forward a key question is how New Zealand milk production will progress up to the seasonal peak. Larger than expected New Zealand supplies or lower than expected demand (due to rising prices and/or global economic pressure) could mean wholesale markets ease. However, the persistence of drought in the US and higher feed prices impacting profitability in both the EU and US suggests the potential for upward price movement due to constrained supply.

What is clear is that volatility will continue as milk production is affected by changing weather conditions, impacting both milk from pasture and the cost of feed.

TheCattleSite News Desk

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