Rabobank: China's impact on Oceania
China continues to drive global and regional dairy commodity markets in 2014, according to Rabobanks’s February 2014 Agribusiness Monthly, which summarizes commodity markets in Australia and New Zealand.
While exportable supplies have risen, China's demand has soaked up most, if not all, the increased supply. Rabobank forecasts that trend to continue, although supplies will eventually catch up to demand, spurred on by higher milk prices. As a result, prices may ease in the second half of 2014.
The Chinese market remains the wildcard. If its domestic milk production continues to fall in 2014, import growth is likely to exceed market expectations, providing further support to global prices.
The current season has provided unusual combination of record-high farmgate milk prices, while at the same time climate conditions have boosted milk flows across New Zealand. Season production-to-date is about 5% higher than a year ago. Full season production is likely to be up about 8%. Fonterra held its milk price forecast at NZD8.30/kgMS in late 2013, and most other processors are now forecasting similar levels in early 2014. This will make extending lactations over the tail of the season via supplemental feeding attractive to many farmers. With national milk flows expected to reach record levels in 2014, both existing and new processors are turning their attention to building new capacity. Powder drying, nutrition/IMF and UHT capacity is set to increase at multiple sites over the coming 12-18 months.
The story is different in Australia, where the 2013/14 production season has been frustrating for most dairy farmers. Season-to-date milk flows are tracking 3.9% below a year ago. Farmers should benefit from easing feed costs and improving milk prices over the remainder of the year, but the overall full-year milk production total is still expected to be below a year ago. Many processors operating in the Southern export region have lifted year-end price forecasts to a range of AUD6.60-6.80/kgMS. A slight easing of the Australian dollar is providing an additional boost to exports. There has been a heightened interest in Australian dairy processing assets, with new foreign capital injected. There is likely to be further investment across the Australian supply chain in 2014.
Weekly dairy cow slaughter under federal inspection
Week ending Feb. 1: 53,900 head
Year-to-date (YTD) 2014: 293,900 head
YTD compared to same period 2013: -26,400 head