New Zealand

Global Demand Lifts U.S. Dairy Exports to Near-Record Levels

Tue, 03 Mar 2026 15:05:04 GMT

Every week, dairy news articles circle the impact of the growing milk production in the United States and what factors could possibly help support prices despite the looming supply. The one bright spot helping to elevate the massive supply issue is the extreme growth in exports we’ve seen over the last few years.

In 2025, the United States approached near record export values at a whopping $9.51 billion in dairy products exported. Second to 2022 in dollars of products shipped to other countries. That equates to a 15% increase year over year from 2024 in dollars and 5% more in total volume of dairy products exported.

Currently, the U.S. sells to 143 countries which saw the biggest increase in demand from a wide range of buyers in the Middle East, South Asia, North Africa and South America. We are third largest exporter of dairy products in the world.

In 2025, the U.S. saw a huge increase in butter and milk fat shipments, up over 165% from 2024. Whole milk powder also saw a massive increase, coming in 56% higher than 2024. Cheese and butter product demand is strong both domestically and abroad.

Globally, milk supply is plentiful with the U.S., New Zealand, and the European Union increasing steady. It can be seen when comparing prices as the World Milk Price which has been falling since early last June.

With supply being plentiful and exports strong, the world has all eyes on the conflict in the Middle East. Over the weekend, tensions between Iran and the United States led to strikes on U.S. bases in Bahrain and buildings in Dubai. While not a direct impact to the dairy industry, the tensions can be felt throughout.

For shipments, insurance and freight costs will be a factor, especially near the Strait of Hormuz. Most cargos will see increased cost with the added risk as well as some energy cost spikes, given the impact on crude oil. Insurance companies either drop coverage or increase prices enough to discourage travel through those areas as we saw with the Russian/Ukrainian war. Bottlenecks in logistics may also be a factor going forward.

As far as changes that will directly affect dairy, it is too soon to tell but something the United States, EU and New Zealand are keeping a close eye on. Butter so far has not factored in a risk to demand as Monday trade was higher on the day. Volatility is to be expected whether it comes directly in the futures markets for dairy products or indirectly from the impact seen on the stock market. This can create marketing opportunities, especially in the deferred months which have surpassed the $18 mark in Class III Milk futures for June and beyond.

Sarah Jungman is a commodity broker with AgMarket.Net and AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Sarah’s office is located in Winterset, Iowa and she may be reached at 515-272-5799 or through the website www.agmarket.net .

The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in trading commodity futures and options on futures. It may not be suitable for everyone. This material has been prepared by an employee or agent of JSA and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.

U.S. Loses Global Competitiveness on Butter

Wed, 24 Dec 2025 14:36:20 GMT

This holiday season has been anything but typical when it comes to butter, a time of year when prices tend to spike. However, this year, CME spot butter prices reached their annual high in July, then dropped precipitously between August and November, putting in a bottom of $1.43/lb. on November 25, then leveled out in the mid-$1.40s, before taking another step lower on December 19.

“Throughout 2025, U.S. butter has been the lowest-priced product among global dairy exporters, and as a result, the United States has seen an uptick in international butter sales. In fact, the United States moved from being a net importer of butterfat in 2024 to being a net exporter by 41.8 million pounds through September 2025,” said Betty Berning, market analyst with the Daily Dairy Report. “However, international butter markets have been eroding of late, and the U.S. price advantage is shrinking.”

In Europe, butter prices in June averaged $3.90/lb., their 2025 monthly high. The monthly average through the first half of December had dropped more than 40% to $2.31/lb., making European butter much more competitive with U.S. product.

“The timing of Europe’s butter price descent has been different than that which occurred in the United States, with the largest losses in Europe occurring between September and December. In fact, U.S. butter held a large discount of more than $1.40/lb. to European butter in August and September. But then as the fourth-quarter milk supply began to swell on the continent, European prices plunged, and the U.S. discount fell to 81 cents per pound, the closest the two prices had been in at least a year,” Berning said.

A similar situation occurred in New Zealand. Global Dairy Trade (GDT) butter prices peaked in May at $3.59/lb. and have since dropped 35% averaging $2.31/lb. at December’s auctions. While prices decreased throughout the second half of 2025, they plummeted between October and December. In December, butter from New Zealand sold for only 84 cents per pound more than U.S. product—after holding a premium of $1.40/lb. in October.

“Looking ahead to 2026, U.S. butter exports should continue their strong pace, given that most sales are booked about three months in advance, and deals for January and February would have been struck when the U.S. discount was still quite large,” Berning said.

“However, as prices converge, U.S. butter exports will likely slow, returning to more historical levels.”

Over the past two years, U.S. butterfat production has grown at a breakneck pace, and while exports are a small part of total demand, the increase has absorbed some of the surplus cream in the United States.

“As export sales slow, butter will pile up more than it already has,” Berning said. “Class IV futures prices have been quite dismal, yet further deterioration in prices to maintain U.S. export flow could greatly crimp on-farm finances, but losing the exports altogether would be even worse.”

The Backbone of New Zealand Dairy: Understanding the Role of Immigration

Thu, 23 Oct 2025 18:37:23 GMT

The New Zealand dairy industry stands as a pillar of strength in the country’s economy, contributing 45% of the $27 billion in export earnings annually. This sector thrives in part due to the hard work of a diverse workforce, much of which comprises international workers who play an indispensable role. Jane Muir, people team leader from New Zealand Dairy highlighted at the 2025 IDF World Dairy Summit in Santiago, Chile: “New Zealand dairy survives and thrives because of our efforts and immigration.”

A Growing Workforce Challenge
New Zealand has a total on-farm workforce of 41,000 people, Muir says, with 60% of those being employees and business owners.

“Importantly, 36% of the total want to continue to grow,” she says.

New Zealand’s dairy sector faces a pressing workforce challenge. Primarily located in rural areas, where population growth lags even further behind, it becomes essential to rely heavily on immigration to fill the gap.

“Most working-age people want to live in the cities,” Muir says, which leaves rural sectors with limited domestic options.

Immigration as a Key Ingredient
Immigration has been a critical pathway for sustaining and propelling the industry forward. Without it, farms might struggle to maintain operations due to a shortage of manpower. The talk emphasized the goal is not just to fill roles temporarily but to create workplaces and jobs that are desirable to locals equally.

“The birth rates in rural New Zealand are even lower, and there’s so many career choices available to our young people today,” Muir says. “So, the role of immigration in New Zealand dairy industry is important, critical even, to keep our farms running. Without immigration, we would be struggling.”

New Zealand Dairy and its partners are investing in initiatives to attract, grow and retain talent. They aim to reach a point where the dairy industry can thrive with local workers. Meanwhile, immigration provides essential support, allowing the dairy industry to continue growing and evolving.

“Our focus is very clearly on ensuring we have great jobs and great workplaces so that we can attract and retain great people; great jobs and great workplaces will be there for all people no matter where they originated,” she says. “It benefits everyone, and it is also the right thing to do. Dairy New Zealand and our partners focus our energy into a large range of initiatives to attract, grow and retain people.”

Pathways to Prosperity
The New Zealand dairy workforce benefits from an inclusive immigration policy with multiple visa types facilitating this influx. Muir explains how most international workers start at the farm assistant level, gradually progressing to roles like herd manager, assistant manager or even farm manager, depending on their skills and attitudes. These pathways ensure workers are not just fillers of temporary gaps but active participants in the growth and innovation of New Zealand dairy farms.

“Almost everyone on a New Zealand dairy farm starts their career as a farm assistant, and how far people progress depends on their skills and attitude,” she says, noting that to be a business owner, this green New Zealand pathway requires being a New Zealand resident.

Success Stories
Muir shares personal stories of Karolina and Marcelo, and Summit and Manoj who epitomize the opportunities available in New Zealand’s dairy industry. They arrived on short-term visas and progressed through hard work, eventually owning their farms. Such narratives emphasize what’s possible with dedication and the right opportunities, showcasing the value of maintaining open pathways for both immigrants and locals.

Challenges and Opportunities
Every opportunity comes with its set of challenges. Immigration policies often shift with political changes, creating uncertainty. Nonetheless, diversity within the workforce brings innovation and resilience to the dairy sector. Muir also highlighted communication challenges, noting the importance of supporting international workers’ English proficiency.

“Once people start working on a New Zealand dairy farm, they experience a great job and a great workplace. Those are the things that we’re committed to,” she says. “Because while immigration is not our focus, the New Zealand dairy sector is better and brighter because of our international team.”

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Dairy Drives Food Inflation in June

Mon, 14 Jul 2025 17:00:00 GMT

Milk and dairy product prices have been a driving force behind food inflation, and high dairy product prices appear to be impacting demand, at least marginally. But milk and dairy product prices could moderate soon without hurting milk production if farm margins remain decent as expected, said Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aires.

In June, robust butter prices were a main factor driving the Dairy Price Index (DPI) up again. Reported by the Food and Agriculture Organization of the United Nations, the DPI rose 0.5% from May levels to hit 154.4 points.

“The index has been moving higher almost continuously since late 2023 and now sits just 3.8 points shy of the record high notched in June 2022,” Ganley said. “While butter prices were the main culprit behind the increase in the dairy index, appreciating cheese prices also played a role. And while whole milk powder and skim milk powder values fell in June, the declines were insufficient to offset the price increases posted for the other dairy products.”

Dairy Inflation

(Fran Howard)

June’s overall Food Price Index (FPI) rose 0.5% to 128 points after dipping modestly in May. According to the index, food prices in June were 5.8% more expensive than a year ago, but they remain well below 2022’s record highs. Meat and cooking oil prices were also up, while sugar and cereal prices fell.

“Although higher food and dairy prices have the potential to negatively impact consumer demand, lower values could be on the horizon,” Ganley noted. “Milk volumes have risen across the world’s key milk-producing and exporting regions as favorable weather and margins have encouraged production growth. At the same time, geopolitical conflict and U.S. trade policy uncertainly could keep demand subdued over the balance of the year.”

While year-to-date milk collections in the EU-27 and the United Kingdom were up only 0.2% in the first four months of this year, output in the United States and New Zealand has been strong, and production in many South American countries has been making a comeback.

“Significant risks to the price outlook persist, but global dairy prices appear poised to at least moderate in the coming weeks and months, especially if consumers continue to cut back on spending.”

After Stagnant 2024, Dairy-Exporting Nations Should See Output Grow

Wed, 08 Jan 2025 20:47:59 GMT

Global milk production among leading dairy exporters is headed for growth in 2025, but will it be sufficient to offset rising dairy demand? That’s the top-of-mind question for U.S. dairy producers and analysts alike. USDA’s most recent semi-annual Dairy: World Markets and Trade report, released in early December, predicts that milk production among the world’s top-five dairy exporters will grow by 0.4% in 2025, after remaining virtually unchanged in 2024.

Monica Ganley, analyst at the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aires, said a 0.4% global year-over-year increase in milk production might not be enough to satisfy growing dairy demand. “Milk production gains will be critical if the industry hopes to satisfy global dairy demand, which is likely to rise in 2025 as the world population grows and improving economic conditions promote the consumption of animal products,” Ganley said.

U.S. dairy producers will drive the projected global increase, with a 0.7% increase this year, compared to 2024. USDA projects that U.S. milk production will rise to 228 billion pounds on improved margins and a larger milking herd. “Improvements in milk component levels this year will boost dairy product production even further from available milk supplies,” Ganley noted.

Oceania output is also poised for gains next year, and while the region’s percentage increases will be larger than the 0.7% gain in the United States, the overall volume will be smaller. USDA predicts that Australia’s output will increase 1.1%, while production in New Zealand will climb 0.9%.

“High milk prices and favorable weather conditions in New Zealand have spurred expansion, but the dairy industry in New Zealand continues to face structural challenges that will limit growth potential over the long term,” Ganley said.

Milk production in the European Union, however, is expected to remain under pressure, with USDA predicting a 0.2% year-over-year decline. “Stubbornly high input costs and environmental regulations have discouraged investment in Europe’s dairy sector and stifled growth,” Ganley noted. “However, the impact has been uneven and while some countries in the bloc are still expanding, total European milk production is expected to struggle in coming years.”

Lastly, Argentina is expected to post the largest year-over-year percentage gain in milk production next year of 4.7%. “After a dismal 2024, a dramatically improved macroeconomic outlook for the country has facilitated new investment and optimism in the dairy sector,” she added. And that should boost milk production.

Weaker Milk Supply Drives Class III Milk Price to 27-Month High

Tue, 22 Oct 2024 19:26:57 GMT

As the days get shorter and the weather cools, harvest is in full swing for dairy farmers around the country. As another crop year comes to a close, farmers are likely rejoicing at recent milk checks though the September Class III milk price settled at $23.34 per hundredweight, the highest in more than two years, since June 2022. Stronger milk prices coupled with lower feed costs support margins, with profits especially welcome after more than one year of struggling profitability.

A weaker milk supply has finally resulted in price strength in certain dairy products. US milk output has been lower than the prior year for 14 consecutive months now, a rare period of weakness for the US industry. On a global level, trends have also been similar, with milk output struggling in the EU and New Zealand. While components are impressive and continue to grow, less milk is causing some concern and pushing prices higher.

Weak Year-Over-Year Comparable

Critically, it will be difficult for farmers to quickly drive milk output higher, possibly keeping margins higher for longer than typically noted. Usually, farmers would add cows and drive yield higher as fast as possible to capitalize on improved profitability. However, replacement heifers are in short supply, and even if available, are at or close to record-high prices. It is not affordably possible to add cows to the herd to quickly increase milk output. Instead, farmers are likely to keep older, sometimes lower-producing cows in the herd for longer, meaning milk per cow is struggling to improve. Milk production will likely creep higher versus the prior year in the coming months, but it will be largely driven by weak prior year comparable datapoints rather than substantial strength in overall volume.

Product production remains mixed among commodities. Milk continues to flow to cheese vats and butter churns, but driers are still operating at lower than normal levels. High butter prices have kept butter production up year-over-year each month so far in 2024. Total cheese production has been mostly higher as well, but Mozzarella is driving that trend at the expense of Cheddar. Combined nonfat dry milk and skim milk powder production has been down more 10% year-over-year during each month since January as there is no need for balancing plants to run full when milk is short, coupled with still uncertain demand needs from global powder buyers.

Looking ahead, the Class III CME futures forward curve does not look as rosy into 2025, slipping back below $20 per hundredweight into Q1 2025. However, with the Class IV price outlook still holding at higher levels, coupled with the lowest feed costs in four years, margins should remain profitable. It is likely that a several month period of farmer profitability is materializing, welcome relief after the financial difficulties noted in 2023 and the first half of 2024.

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New Zealand’s Slowing Sales to China Could Result in Global Surplus

Fri, 16 Aug 2024 15:57:39 GMT

China’s slowing purchases of dairy products from New Zealand, particularly milk powders, could result in excess product on the global market. As China supplies more of its own dairy needs and eats down its inventories, it will continue to buy less milk powder, especially from New Zealand, said Betty Berning, analyst with the Daily Dairy Report.

According to a Rabobank report, decreased whole milk powder exports to China equate to 150,000 metric tons, or about 1.3 million metric tons of milk equivalent annually, about 6% of New Zealand’s annual milk production.

“This change in buying will pose challenges to New Zealand as well as to the global dairy industry, as the influx of product into the global market looks for substitute buyers,” Berning said. “Even though U.S. milk production is down from a year ago, and output growth in Europe and New Zealand is limited, the shuffling of the dairy export deck could mute the impact of smaller milk supplies, keeping prices from moving much higher than current levels.”

New Zealand, one of the world’s top dairy exporters, sends the bulk of its milk production overseas, mostly in the form of milk powders, and exports are crucial to the health of the country’s dairy industry, Berning said. New Zealand’s year-to-date whole milk powder through June were up 7.4% vs. the January through June period in 2023, but sales to China were down. New Zealand’s year-to-date sales of skim milk powder were 3.8% lower through June, compared to the first half of 2023, but 2024 sales will still likely be strong historically.

While New Zealand’s 2024-25 milking season is just beginning, milk collections have been trending lower since 2021. In June of this year, milk solids of 44.8 million pounds were 2.2% lower than the same month in 2023, which will continue to reduce the volume of milk available for powder production, according to Berning. Some in the New Zealand dairy industry expect milk solids to be down again in July before climbing into the new production season.

“Milk solids are the moneymaker for New Zealand producers,” Berning said. “Increased solids and a higher milk price will be important this season in helping producers there rebalance budgets and make a profit.”

According to Stats New Zealand, for the 12 months ending in April 2024, the country’s milk powder exports, worth $9.7 billion, accounted for 14% of the value of all exports, making it the country’s largest export commodity. Over that same 12-month period, 30% of New Zealand’s milk powder exports were sent to China.

Global Demand for Cheese Continues to Climb

Fri, 19 Jan 2024 16:00:00 GMT

People can’t get enough cheese, regardless of what continent they live on. Cheese has long been a staple in many countries’ cuisine, and in those cultures where cheese has more recently been introduced, demand continues to rise. “Global cheese demand just keeps climbing,” said Sarina Sharp, analyst with the Daily Dairy Report.

According to USDA’s semi-annual Dairy: World Markets and Trade report, global cheese consumption is projected to reach a new record high of 21.6 million metric tons, or 47.7 billion pounds, this year. Compared to 2023, global cheese consumption is up 1.2% and compared to 2019, it’s up 5.7%.

“Global cheese production is rising even faster than demand, and the United States is the major contributor to the surplus,” Sharp noted. USDA expects that U.S. cheese production will be 9.8% greater in 2024 than it was in 2019, outpacing growth in domestic consumption, which is likely to rise 8.3%. During the same period, foreign cheese output is projected to grow 4.2%, which will not keep pace with the expected 4.6% increase in foreign cheese consumption.”

Sharp’s math makes it clear that the U.S. cheese industry will continue to depend on exports, but she quickly adds that the news on going forward is positive. USDA expects that each of the world’s major cheese importers will import at least as much cheese this year as they did in 2023.

“However, slower economic growth and waning populations have softened demand in key Asian markets. Although Japan and South Korea are likely to import more cheese this year than they did in 2023, their imports are expected to still fall short of 2020, 2021, and 2022 volumes,” Sharp said. “Somewhat softer demand from these markets will likely be offset by record-setting imports from Mexico and China and record-tying purchases from Russia, the world’s second-largest market for imported cheese.”

USDA expects U.S. cheese exports to climb 7.6% this year to a record high. In late 2023, U.S. cheese prices declined even as values climbed in Europe and Oceania. That price gap will likely provide U.S. exporters with some new business in the first half of 2024.

“To keep product moving, though, prices will have to stay low enough to retain buyers’ attention,” Sharp said. “Strong exports this year could help lift the U.S. cheese market from its recent depression, but with cheese output heavy on both sides of the Atlantic, the ceiling on the cheese market will likely need to be quite low.”

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World Milk Production Begins New Year Weak

Tue, 02 Jan 2024 17:43:12 GMT

Declining world milk supplies have tightened global dairy markets and contributed to some recent price gains, such as the recent rise in the Global Dairy Trade index. According to Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aries, “Milk production has been slipping across the world’s main dairy-exporting regions and countries as margin pressures, weather challenges, and regulatory burdens weigh on volumes.”

In October, combined output across the world’s top-five dairy exporters fell 1.2% below year-earlier levels, marking the third consecutive month of contraction and the deepest year-over-year loss since May 2022. The most severe absolute losses occurred in Europe, Ganley said. In the European Union and United Kingdom combined, milk production tumbled 1.7% in October, a drop of 224,000 metric tons (MT).

“The reduction in the EU and UK milk supply represented 70% of the total decline seen across all the key exporters. Industry stakeholders suggest that falling milk prices this past autumn undermined profitability, and as expectations intensified for an increasingly restrictive regulatory environment in Europe, many producers chose to exit the business permanently,” Ganley said.

Losses were also seen across the Atlantic. For example, in the United States, thin margins and a declining milk herd pushed year-over-year production down 0.7% or 61,000 MT. Milk output slipped another 0.6% in November, compared to the prior year, marking the fifth straight month of year-over-year declines in the United States. In November, the U.S. milk-cow herd shrunk to a three- year low, setting the stage for sustained contraction in U.S. milk output.

Meanwhile, in Argentina, where a new government has created an economic shock, output fell 4.3%, or 49,000 MT. Argentina’s new president, Javier Milei, has promised to restore the country’s ailing economy by slashing government spending and implementing sweeping reforms. Many of the proposed reforms have profound implications for the agricultural and dairy sectors, Ganley reported. In the first week following his inauguration, Milei announced a more than 50% devaluation of the official exchange rate, which will have multiple impacts for the dairy industry, she said.

“For exporters, it will increase the amount of money that hits their bank accounts, since exports are paid at the official rate. However, it will also make dollar-denominated inputs more expensive for the sector in peso terms,” she said. “Another key initiative is the implementation of a 15% export tax across nearly all products. However, Argentina’s dairy sector was successful in securing an exemption from this rule. As a result, Argentina’s dairy exports will become more competitive in international markets as export taxes will be 0% as opposed to the 4.5% to 9% levied in recent years.”

In Oceania, New Zealand production dipped a modest 0.3% in October, while in Australia, the only key exporter to see volumes rise, output rose 2.1% vs. the same month last year, adding about 19,000 MT of milk to the global total.

“Looking forward, the situation remains precarious,” Ganley said. “Even though most of the factors that have been pressuring milk production lower are likely to persist, global demand remains weak, suggesting that further milk production losses could be necessary before milk and dairy product prices are able to move much higher.”

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Fonterra Farmers to Get Extra Payment from Nestle for Sustainability Goals

Thu, 14 Dec 2023 16:58:29 GMT

New Zealand dairy group Fonterra said on Thursday food and beverage giant Nestle will make additional payments to its farmers for achieving certain sustainability goals under a new agreement.

Depending on the number of Fonterra farmers achieving one of the three levels of the company’s sustainability goals during the 2023-24 season, Nestle is expected to pay an additional 1-2 New Zealand cents per kilogram of milk solids (kgMs) under the agreement.

Fonterra’s fiscal 2024 forecast for farmgate milk price - the price it pays to farmers - is between NZ$7.00 and NZ$8.00 per kgMS.

“Nestle has sourced dairy from New Zealand for well over a hundred years and we will continue supporting farmers, alongside our partners, to develop new economic opportunities and reduce their greenhouse gas emissions,” Nestle New Zealand CEO Jennifer Chappell said.

Fonterra, which aims to be net zero by 2050, launched the “Co-operative Difference Payment” program in 2021 under which farms that sustainably produce higher quality milk will be paid slightly differently for milk solids.

500 Cows Rustled from New Zealand Farm in Unusual Case

Fri, 20 Nov 2020 02:59:33 GMT

How do you steal 500 cows?

Probably not all at once. That’s according to New Zealand police, who said Tuesday that they were investigating reports of the unlikely crime at a South Island farm.

Locals said they’d never before heard of cattle rustling on such a massive scale. And that’s in a nation that’s home to some 10 million cows, more than double the number of people.

The farmer involved is feeling too sheepish to talk about what happened, according to friend Willy Leferink.

“He’s absolutely gobsmacked, and deeply embarrassed,” Leferink said. “If you had three-quarters of a million dollars go missing, you wouldn’t want to talk about it either.”

Leferink said each milking cow was worth about 1,500 New Zealand dollars ($1,090) and weighed more than half a ton. He said the cows could have been taken from the herd of 1,300 near the town of Ashburton anytime between early July, when they were last counted, and late August.

He said the cows weren’t being milked because it was winter, but the farmer did notice they weren’t chewing through as much feed as normal.

Police said the incident came as a reminder to farmers that they should be checking their fences and counting their stock regularly.

“It’s unlikely the theft of hundreds of animals could be completed at once, and is more likely that multiple thefts could be carried out over a period of time,” Senior Sgt. Scott Banfield said in a statement.

Leferink said a trailer-truck would need to be loaded 13 times over to move all the cattle.

“There have to be a number of people involved,” Leferink said. “That’s the biggest chance we have, of somebody cracking at some stage.”

He said the thieves would face a tough time trying to fence the cows, because each one comes with an electronic identification tag in its ear. He said the tags could be removed, but that an honest dealer wouldn’t buy a cow without a tag.

Leferink said farmers can sometimes be relaxed about security.

“They’re good-natured and haven’t got evil thoughts in them,” he said. “This is very hard to deal with.”

Dairy at the End of the Earth Struggles as Industry Grip Weakens

Fri, 20 Nov 2020 02:59:29 GMT

In the shadow of a snow-dusted volcano on a corner of New Zealand’s North Island, a sprawling expanse of stainless steel vats, chimneys and giant warehouses stands as a totem of the tiny nation’s dominance in the global dairy trade.

The Whareroa factory was until recently the largest of its kind, churning out enough milk powder, cheese and cream to fill more than three Olympic-sized swimming pools a week. The plant has helped make owner Fonterra Cooperative Group Ltd. the world’s top dairy exporter and its farmer-suppliers among the greatest beneficiaries of China’s emerging thirst for milk. Now, faced with reduced Chinese demand that’s eroded milk prices and helped drag 80 percent of New Zealand’s dairy farmers into the red, the 44-year-old factory has come to symbolize Fonterra’s struggle to climb the value chain.

While a global shift toward more natural foods has spurred even Coca-Cola Co. to develop new milk products, Fonterra’s business remains largely wedded to commodities traded on often-volatile international markets. That’s frustrated the ranks of the cooperative’s 10,500 farmer-shareholders, who are set to receive the lowest return in nine years for the milking season just ended, and turned Fonterra’s strategy into the subject of national debate.

“Fonterra hasn’t taken the opportunity to put itself in a position to really weather these storms as well as they should be able to,” said Harry Bayliss, 63, a former Fonterra director who still supplies the cooperative from farms about 30 kilometers (19 miles) west of the Whareroa factory. “What the board has focused on in the last 10 years haven’t been areas that have created real ongoing value for the shareholders or the company.”

‘Nokia Down Under’

Auckland-based Fonterra has responded by selling assets, cutting jobs and closing a factory to improve efficiency and strengthen its balance sheet.

“We have confidence in the long-term fundamentals of dairy, and we remain focused on securing the best possible returns for our farmers by converting their milk into high-value products for consumers around the world,” Chief Executive Officer Theo Spierings said in a statement Thursday that announced a 10 New Zealand-cent dividend payment and reiterated a forecast for improved earnings.

Forged in 2001 from the merger of New Zealand’s two largest dairy companies and the agency that controlled the nation’s dairy exports, Fonterra was promoted as a means of creating critical mass for Kiwi farmers. A kind of Nokia Down Under, it was to drive innovation and thrust the country onto the world stage by taking on the likes of Nestle SA and Kraft Foods Group Inc.

Yet, even with a near-monopoly over New Zealand’s milk output and an empire spanning Australia, the Americas and China, Fonterra is more likely to supply those companies than compete with them on supermarket shelves.

“The idea was to move New Zealand’s dairy industry up the value chain, and push hard to become a global brands company,” said Oyvinn Rimer, a research analyst at Harbour Asset Management Ltd. in Wellington, who has tracked the cooperative for about five years. “It just has not happened.”

Every six hours, a train pulls in to the Whareroa factory, near Mount Taranaki in the small town of Hawera, to pick up five containers of Fonterra product -- milk powder makes up almost half.

The commodity, with a six-month shelf life, has been New Zealand’s core farm export for more than 20 years. In fact, the South Pacific nation supplies about two-thirds of the whole milk powder traded internationally.

Powder Keg

“The problem is we put all our eggs, or nearly all our eggs, in that whole milk powder basket,” said Keith Woodford, an honorary professor of agri-food systems at New Zealand’s Lincoln University, who has followed Fonterra since its formation. “We locked ourselves into this one product and Fonterra lacks the capital at hand to now change direction quickly.”

Prices for whole milk powder, an ingredient in everything from cookies to ice cream, have dropped by half over the past three years as purchases by China, the biggest buyer, dwindled amid a glut in global dairy supplies. That dragged down the fortunes of export-dependent dairy farmers worldwide, but especially in New Zealand, where they rely on China and other major markets to buy about 95 percent of their output.

“In my 35 years of farming, this is by far the worst downturn that we’ve been in,” said Phil Nixon, 59, a second-generation farmer whose 350-cow herd supplies the Whareroa factory. While Nixon is “very, very passionate” about Fonterra, he says the cooperative has been a frequent source of frustration. “I’m damn sure that with everything efficient, they could return us more than what they have,” Nixon said.

Milk payments to farmers dropped to an estimated NZ$3.90 ($2.80) a kilogram of milk solids for the year ended May 31, half the record NZ$8.40/kg paid two years earlier. While the current season’s price is predicted to increase to NZ$4.25/kg, at that level it will still be about 20 percent below what farmers need to cover their costs.

S&P Global Ratings downgraded Fonterra to A- in October, four rungs above junk, citing its “peak capital expenditure,” as well as global market volatility. Capex exceeded operating cash flow by NZ$948 million in the year ended July 31, 2015, as dairy prices plummeted.

Earnings are forecast to improve as the milk glut abates, reaching 50-to-60 New Zealand cents a share in the current financial year, Fonterra said in an Aug. 1 statement, from an estimated 45-to-55 cents a year earlier. This shows the company is making “good progress in continuing to increase value through our consumer and foodservice businesses,” CEO Spierings said at the time.

The relatively wide earnings range indicates Fonterra remains sensitive to commodity-price variability, said Arie Dekker, head of institutional research at First NZ Capital Securities Ltd. in Auckland, in a report. “Ultimately, investors are looking for more consistent results.”

Shedding Suppliers

Farmers, too, want more. Some sold their equity in the cooperative and switched to supplying competitors. Fonterra’s share of New Zealand’s milk supply has dropped to 84 percent from more than 95 percent in 2001, according to Wellington-based Infometrics Ltd.

Laws passed at Fonterra’s creation aimed at safeguarding competition in New Zealand’s dairy industry compel the cooperative to collect fresh milk from any farmer who wants to supply it. That guarantee has contributed to a quadrupling of the nation’s milk supply since 1984. Kiwi farms are forecast to produce about 22 billion liters (5.8 billion gallons) of milk this year -- almost four times the production of Ireland, which has a similar climate and population size, according to KPMG.

‘Huge Wave’

Collecting this “huge wave of milk,” as Fonterra director David MacLeod calls it, has become less economic as a 22 percent increase in land used for dairy farming in New Zealand since 2008 forces the cooperative to travel further from its factories to pick up supplies. The legislation, which also requires Fonterra to sell milk at regulated prices to smaller processors, is currently under review, with the government proposing that Fonterra no longer be obliged to collect output from dairy startups.

“It will give us more options,” said Rob Spurway, Fonterra’s chief operating officer for global operations, in an interview. “We can invest more in the value-add areas in the business rather than simply coping with large volumes of milk.”

As it is, Fonterra creates less value from raw milk than Danone SA, Nestle and the majority of its global competitors, according to estimates compiled by the International Farm Comparison Network this year.

“Danone and Nestle, they just buy milk as they require,” CEO Spierings said in an interview at one of Fonterra’s cheese plants in June. “We are a cooperative, we have to take all the milk. We have to take it in and we have to create value off everything -- we will never be the same.”

Geography is a challenge, too. While New Zealand has a temperate climate and abundant rainfall, making it ideal for dairying, it’s 2,500 kilometers from Australia, its closest major market. Going abroad hasn’t been without difficulty either.

In Australia, where Fonterra is facing a backlash from its farmer-suppliers over milk-price cuts, it is selling its loss-making yogurt and dairy desserts brands to the local unit of Italy’s Parmalat SpA, after shedding a 9 percent stake in Bega Cheese Ltd. in October.

A key part of Fonterra’s current strategy is to expand supply to 30 billion liters by 2025 in as many as six so-called global milk pools. That includes China, where the company has two farming hubs that posted a NZ$29 million first-half loss before interest and taxes.

Fonterra is now counting on an investment in Beingmate Baby & Child Food Co Ltd. -- which has about 7 percent of China’s baby food market -- as a salve for the collapse of its former partner Sanlu Group amid a food scandal involving melamine-tainted infant formula in 2008.

Some farmers are wary of developing an over-dependence on China.

China’s consumers “are great for New Zealand -- they’re great for the world,” said Dave Ellis, whose farm in South Canterbury on the South Island is one of Fonterra’s biggest suppliers. “But we’ve gotten very reliant on them.”

The broader issue for Fonterra, said Ian Proudfoot, global head of agribusiness for KPMG in Auckland, is the need to extract more from its milk.

“Having a strong position in an important sector like dairy is valuable to New Zealand,” he said. “The challenge for us, though, is we’ve got to ensure that’s a high-value position and we’re not just sweat-shopping out low-value commodities.”

Milk Slump 'Kick in the Guts' for Kiwi Farmers Just Starting Out

Fri, 20 Nov 2020 02:59:25 GMT

Dairy farmers Bryce and Amanda Savage begin work before 5 a.m. and rarely finish before 6 at night. They even keep a round-the-clock vigil some evenings in case cows have difficulty calving. What’s worse, the 7-day-a-week job is pushing the New Zealand couple deeper into debt.

The Savages are so-called sharemilkers, part of a long tradition in New Zealand where typically landless farmers provide labor, and often their own cows, to an established farm in exchange for use of the pasture and equipment, as well as a cut of the milk check. The arrangement is the backbone of one of the world’s most efficient dairying nations, but after a two-year slide in milk prices, it’s in crisis. The Savages have had to let a farmhand go, sell 60 cows and borrow more money just to get by.

The couple bought a farm in 2013 and were counting on the cash flow from sharemilking to give them enough equity to move onto the property after three years.

“We’re basically having to start again,” Bryce, 33, said at the kitchen table, looking out at the farm in South Taranaki, a dairying region of the North Island, that he’s been working on since 2007. “It’s a bit of a kick in the guts.”

Prices Fall

Global dairy prices have fallen by more than half from early 2014 levels, causing milk processors to slash payments to farmers, about 80 percent of which are operating at a loss in New Zealand, according to the central bank. Sharemilkers, who account for more than a third of the nation’s milk suppliers, are bearing the brunt of the impact because, unlike farm owners, they typically miss out on the extra dividends and loans paid by dairy cooperatives.

Average operating profit for sharemilkers who own their herds was less than half that of farm owners in the three years to 2015, according to a report from AgFirst, a rural consultants’ network in New Zealand, published in May. Sixty percent of sharemilkers said they had cut down on the amount of money they were withdrawing from their businesses amid the downturn, versus 39 percent of farm owners, the report showed.

“It’s really unfortunate that the young people -- the sharemilkers, the future of our industry -- are the ones who are really taking the biggest hits,” said Ross Dunlop, mayor of South Taranaki and a farmer himself. “That’s a worry, that those people will leave the industry and be hard to replace.”

Own Herds

One in six New Zealand farms in the year ended May 31 were run by sharemilkers who owned their own herds -- typically the final step before farm ownership. That was down from 23 percent in 2004-2005, according to the AgFirst report.

The number of sharemilkers intending to buy their own dairy farm dropped to 47 percent, from 70 percent 10 years ago, AgFirst said. A separate survey from Federated Farmers indicated a fifth of sharemilkers felt they were getting “undue pressure” from banks regarding their overdraft, versus 10 percent for other dairy farmers.

Neil Bateup hears some of the consequences of that. The dairy farmer chairs a rural support service that runs a 24-hour hotline catering to a dairying district more than 300 kilometers (186 miles) north of Taranaki.

Typically, three or four calls are taken each month, but their frequency doubled last year, mostly driven by distressed sharemilkers seeking advice about mental health, financial and relationship difficulties. It’s now up to about 20 to 25 per month, Bateup said.

‘Under Pressure’

“It just reflects the fact that people are under pressure,” he said. “The good thing is that people are calling us and we can help facilitate a way forward.”

Problem loans will increase “significantly” with many farmers facing a third season of negative cash flow, the central bank said in May in a report on potential risks to the stability of the New Zealand economy. Lending is concentrated, with 10 percent of the country’s farmers holding 30 percent of the total debt, according to Citigroup Inc.

South Taranaki Mayor Dunlop has sharemilkers working his own family farm, about 11 kilometers from the Savages. The system provides a way for older farmers to ease their workload while giving young milkers the cash and experience to start out on their own.

‘See it Through’

“I know that they’re struggling,” Dunlop, 61, said. “But they’re still pretty confident that they want to see it through because they’ve been through the good times.”

Fonterra Cooperative Group Ltd., the nation’s dominant milk processor and the world’s top dairy exporter, is seeing “early signs” of a recovery in prices, Chairman John Wilson said in a statement Thursday.

Even still, prices for whole milk powder are unlikely to return to the peak levels above $5,000 a ton reached in 2013, said Hayley Moynihan, Rabobank Groep’s general manager in New Zealand. A drop in Chinese imports along with the lifting of decades-old quotas on European dairy production and sanctions restricting access to the Russian market are weighing on prices.

“It’s not a good time to exit as you’re not going to get your money out,” said Bryce Savage. “You’ve just got to keep farming through it.”

Look Out New Zealand, Here Comes Another Act of God

Fri, 20 Nov 2020 02:55:51 GMT

As if a sharp fall in the price of milk, New Zealand’s biggest export, wasn’t bad enough, the country is now bracing for a summer drought that could further hurt farmers and raise the risk of recession.

The most severe El Nino weather pattern in at least 18 years is brewing and set to bring dry winds and below-average rainfall to the South Pacific nation in the months ahead. That will play havoc with dairy farmers and other agricultural producers that together account for a third of New Zealand’s export earnings.

While no economists are yet forecasting a recession, central bank Governor Graeme Wheeler last week said if the El Nino is severe and continues into the middle of 2016, a contraction could be the result. The National Institute of Water & Atmospheric Research says soil moisture levels are already falling in eastern regions and there is an elevated risk of drought later in the summer amid signs the weather event may be the worst since 1998.

Severe Droughts

New Zealand’s economy, while among the world’s most developed, is particularly vulnerable to nature turning against it. The country suffered its most recent recession in 2010 after an earthquake struck the city of Christchurch, while the two previous economic contractions in 2008 and 1998 coincided with severe droughts and slumps in financial market sentiment.

Agriculture and food processing industries make up about 9 percent of the nation’s gross domestic product, making the economy sensitive to climate swings and global demand.

“Over history, to get into recession we need to have multiple shocks,” said Nathan Penny, an economist at ASB Bank Ltd. in Auckland. “A drought makes us vulnerable, and if we got a drought plus say a shock from China then that would make a recession quite possible.”

Rate Cuts

Wheeler on Sept. 10 cut the cash rate to 2.75 percent -- the third reduction in three months -- and said further easing may be required.

“The conditions that probably would be needed to create a recession in New Zealand would be something like China slowing dramatically or perhaps moving into a recession,” he told reporters. “If the El Nino impact really took hold and continued right through into the middle of next year or thereabouts that could have a significant effect as well.”

The 2007-08 drought was caused by a La Nina weather pattern that hit dairy producing regions in the nation’s North Island hardest. It cost the New Zealand economy NZ$2.8 billion ($1.8 billion), according to government estimates. The economy shrank for five straight quarters from early 2008, and the central bank slashed interest rates as the slump deepened and then the global financial crisis took hold.

A report tomorrow will probably show growth in the 12 months ended June 30 was 2.5 percent, down slightly from 2.6 percent in the previous quarter, according to the median forecast of 15 economists surveyed by Bloomberg.

Tough Time

Dairy farmers along with beef and lamb producers say they are already having a tough time even before the El Nino hits.

Dairy auction prices hit a 12-year low on Aug. 4 amid a global glut and weak demand from China. Fonterra Cooperative Group Ltd., the world’s biggest exporter, cut its forecast payments to New Zealand farmers to NZ$3.85 a kilogram of milksolids -- the lowest in 10 years.

Fonterra expects a drop in milk output in the season ending May 31 as farmers cull cows and stop buying extra feed, and it is offering less product at auctions. Dairy prices jumped 16.5 percent at an auction yesterday from the previous sale on Sept. 1, the third consecutive double-digit gain. Still, they are more than 50 percent lower than their peak in 2013.

The recovery has led some economists to raise their forecast for Fonterra’s payment to as much as NZ$5 a kilogram.

The payment to farmers “would still be below the cost of production for many,” said Doug Steel, senior economist at Bank of New Zealand Ltd. in Wellington. He is assuming milk production will fall about 4 percent this season and has trimmed his forecasts for export volumes next year in anticipation the El Nino will hurt sheep and beef farmers who occupy the nation’s eastern regions.

“We have had a tough autumn in a lot of places,” said Andrew Burtt, chief economist at industry body Beef Lamb New Zealand. “Grass isn’t growing so well and that’s having a impact on how well farmers will be able to finish lambs. It might lead to light lambs.”

The odds of a recession “are not particularly high” right now, Steel said. But “if drought was to get harsh enough it’s certainly on the cards.”