New Zealand Milk Supplies Seen Slowing on Drought, Rabobank Says

Milk production in New Zealand, the world’s biggest exporter, will continue to slow as the most widespread drought in at least three decades curbs supplies, according to Rabobank International.

Supplies may be as much as 15 percent to 20 percent below a year earlier through the third quarter, the bank said in a report e-mailed today, without giving a specific forecast. Production growth may be below 2 percent in the second half of 2013, it said.

A drought declared across the entire North Island may cost NZ$2 billion ($1.6 billion) as the dry conditions threaten economic growth, the government estimates. About 61 percent of the country’s milk is produced on the North Island, Rabobank estimates. Whole-milk powder prices have climbed 39 percent this year amid supply concerns, while the government said March 15 it is also watching parts of the South Island that are very dry.

"Milk supply has been falling below prior year levels since February by an increasing margin with each week that passes," Rabobank said. Production will fall even further over the remainder of the season, it said.

Cow slaughter increased almost 40 percent in the four months to January from a year earlier, the bank said.

Growth in milk volumes will probably slow to 1 percent this year after expanding 6 percent at the start of the season as the drought hurts production, Fonterra Cooperative Group Ltd. chief executive officer Theo Spierings said Feb. 27. The Auckland- based company last month maintained its forecast payment to 10,500 farmer shareholders at NZ$5.50 per kilograms of milk solids in the 2012-2013 season, citing the drought.

Whole milk powder for May delivery rose 19.3 percent, the most since Sept. 1, 2010, according to a trade-weighted index on Fonterra’s GlobalDairyTrade website on March 5. The near-term contract for New Zealand product rose to $4,343 a ton, the highest price since March 1, 2011.