By Alexandria Winning-Browne, NZX dairy analyst
China has released its latest dairy monthly report, highlighting a turnaround for the nation’s raw milk price and another slight decline in production of dairy products.
The Chinese raw milk price stopped declining during September, up 0.29% from August’s figures, and the first full-month’s increase after eight months of downward trajectory. The Chinese raw milk price increased 0.01 yuan/kg from August, to 4.13 yuan/kg. This figure is 0.21 yuan/kg or 4.8% higher than the price in September 2021. Beijing Orient Agribusiness Consultants (BOABC) notes that the cost of dairy farming is the key driver of this milk price turnaround, with the cost of feed continually increasing year on year.
Chinese soy meal prices increased 20.7% in September year on year at 4.63 yuan/kg, while corn increased 2.1% year on year to 2.99 yuan/kg. This is the first month-on-month increase for soy meal since April, with prices pulling up 5.2% from August. These figures are no surprise with recent extreme weather conditions having affected grain-producing regions throughout China through the summer period.
China is expected to increase its total grain yields in the 2022-23 season up 1.5 million tonnes to 420.2 million tonnes – though not to the extent the nation would have liked, with the growing size of herds in the nation. Herd sizes have increased significantly with a 34% growth of imported breeding cattle year to date, and a recent incentive introduced to increase the imports and breeding of cattle. The incentive issued by the Jilin local government provides a one-off subsidy of 10,000 yuan/kg for each breeding bull and 1000 for each cow giving birth to a calf. This announcement coincides with the New Zealand Government’s recent ban on livestock exports, opening up the growing herd imports market of China to other nations to fill.
With herd sizes increasing and relatively stagnant yield growth, imports of grains have continued to increase. Soybean and wheat imports have grown in August, up 61% and 166% year on year respectively. Year-to-date soybean imports sit down 38%, though with recent constraints of soybean supply offshore with the Ukraine conflict and the decreases in United States yield, this is of little surprise.
What is also of little surprise is the declining demand of dairy products domestically in China, with lockdowns having impacted the nation’s restaurants, supermarkets and online activity across many of the largest cities. BOABC reports online sales of dairy products declined 23.7% year on year in the first half of 2022, pushing the price of domestic products up with liquid milk, yoghurt, infant formula, and adult milk powder having increased 3.99%, 2.39%, 2.16% and 2% year on year respectively.
So what does this all mean? China continues to set itself up for domestic dairy supply security, by boosting its national herd and increasing its feed supply. While there is uncertainty around Chinese dairy imports for the rest of the year, with recent import figures very low, some are concerned about how much of the change is the result of sporadic lockdowns throughout the nation, and how much is the desire of the whole country to provide further self-sufficiency for their people. Growing Chinese milk powder output has meant imports of milk powder have decreased. Fats, cheese and whey imports, meanwhile, have increased. There will remain a level of ambiguity over the future of the Chinese dairy market over the next couple months. However the adjustment of the trade tariff window in January will be an interesting indicator of change.
What else happened in dairy last week?
US grain yields decline
The US Department of Agriculture has released its October World Agricultural Supply and Demand Estimates report, highlighting declines for yields of wheat, corn, and soybeans.
Wheat production has been revised down by 133 million bushels to 1650 million, still up on last year’s yields, although only just. This number is the result both of harvested area and yield, with the recent cyclone having impacted farms on the south and east coasts.
Corn production has also been revised down, forecast at 13.895 billion bushels, a decline of 49 million. Yield has been revised down by 172 million bushels from the previous month. Corn feed is raised by 50 million bushels, a combined indication of unfavourable growth conditions. Soybean production has also taken a hit, down 65 million bushels to 4.3 billion bushels. Harvested area remained unchanged but yields were the biggest driver of this change. These results are disheartening with the growing demand out of Asia for US grains. Chinese dairy production is helping to grow the nation’s drive for US grains, and as a result the futures market has risen with Chicago soybean futures up 2% at US$13.94 a bushel and corn up 15c to US$6.98/bushel as of Tuesday’s trading. These figures are only expected to increase with news of this report hitting the market.
NZ on-farm emissions pricing scheme
The New Zealand Government has proposed its farm-level emissions pricing scheme, a first in global agriculture.
The proposal, which are subject to a period of consultation that ends on November 18, proposes a split-gas pricing scheme from 2025.
The government has tweaked parts of the plan put forward by He Waka Eke Noa, with changes to sequestration and synthetic nitrogen fertiliser emissions offsetting.
The announcement stated that the pricing scheme would give farmers control over their systems and provide cost decreases through emissions reduction. Methane prices would be adjusted either annually or every three years based on targets.
The government has sought feedback on whether farmers are to be charged for on-farm synthetic nitrogen use or the payments should be shifted to manufacturers and importers of the fertiliser.
The Climate Change Commissioner and Parliamentary Commissioner for the Environment also highlighted that emissions should not be fully offset by the planting of trees and that further long-term changes needed to occur in farming practice.
The final proposal is to go to Cabinet for approval next year.
Current government modelling has a decline of about 9% for dairy production in New Zealand as a result of the proposed regulations. We have not completed any modelling on how the proposed changes might change production, but we do expect there to be short-term impacts at least. We expect NZ farmers to be able deal with the changes in the longer run. There is no cap on emissions, and thus production, which allows for production to increase.
