New Zealand Could be Building Dairy Stocks
By Fran Howard
Rarely, if ever, does the world dariy industry worry about stockpiles of dariy products in New Zealand. But this year, dairy product stocks in the world’s dairy exporting powerhouse are unusually high. Overproduction has pressured prices in New Zealand to very low levels, and some product is making its way to U.S. shores.
“Just as New Zealand’s 2015-16 season gets underway, reports are surfacing that the country continues to struggle with unusually high stocks of dairy products made during the 2014-15 season,” says Sara Dorland, dairy analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle. “Rising stocks and robust milk production at a time when world prices are falling are not typical New Zealand—particularly at this point in the year.”
However, given the strong end to New Zealand’s 2014-15 milk production season and weaker exports in June, the probability that dairy product inventories are mounting in the country is rising.
New Zealand’s June exports fell sharply. The country exported 66 million pounds of butter in June, 21 percent less June 2014. June butterfat exports also fell 9 percent below May levels on a daily average basis.
“Granted, butterfat exports logged a solid performance in June 2014, but this June’s pace fell to levels not seen since 2011, and June exports were well off their five-year average pace of nearly 74 million pounds,” notes Dorland.
New Zealand’s cheese exports fared somewhat better, says Dorland. New Zealand exported 48.3 million pounds of cheese in June, which was down 5 percent from prior year and nearly 18 percent less than in May on a daily average basis.
“Australia, China, and the United States were the top three destinations for New Zealand cheese in June,” says Dorland. “Gains from these three regions offset losses to Japan, but decreases in several other regions resulted in lower year-over-year performance.”
New Zealand exported 4.3 million pounds of cheese to the United States under the Cheddar and Colby designation.
“Given the price disparity between U.S. Cheddar blocks and New Zealand spot cheese prices in June of $1.7052 and $1.5479 per pound, respectively, it’s no surprise that U.S. buyers were interested in sourcing New Zealand cheese,” Dorland says.
The situation for milk powders was worse in June. New Zealand exported 27 percent less skim milk powder, 43.9 million pounds, compared to the prior year. Whole milk powder exports of 201 million pounds fell 12 percent below a year ago.
“While lower year-to-date net export volumes in the first half of 2015 compared to 2014 do not necessarily mean higher stocks, when combined with the fact that New Zealand’s milk production from January to May was 0.8 percent higher than the same period in 2014, the probability of above-average stocks appears more likely,” she says.
And New Zealand is not the only place where stocks are likely building. Stockpiles of both skim milk powder and whole milk powder in China continue to persist, says Dorland. The U.S. has record-large stocks held by manufacturers, and Europe has extended the end date for both its private storage aid and public intervention stocks, which means stocks of dairy products are likely to continue to climb in the European Union.
“It could take time for supply and demand to regain balance despite a global milk supply that continues to slow,” says Dorland.
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