Thursday, April 25, 2024

Surprisingly strong finish for dairy

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There has been significant movement within the dairy industry over the past few months, both locally and globally.
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By Cristina Alvarado, NZX commercial manager – data & insights

As New Zealand finally sees a proper summer after the terrible floods many regions experienced around the same time last year, there has been significant movement within the dairy industry through January and early February, not only in the country but globally.

Following the price increases seen through the December and first January Global Dairy Trade (GDT) events, results from auctions 348 and 349 (January 16 and February 6) showed continued uptick in prices as the volumes offered were lower than the equivalent events last year, and demand was sustained. 

We see varied factors playing out in these events – a combination of uncertainty for global milk production as well as demand strengthening again in certain regions. 

The expectation on how the United States’ and Europe’s milk production will perform this year, the ongoing issues shipments are facing (with the drought in the Panama Canal, and tensions around the Suez Canal), and regions within Asia and the Middle East increasing their demand, have played a significant role in this. We are still to see if this buying activity will continue in the coming auctions.

Regarding production, despite numerous countries within the European Union, the US and the United Kingdom continuing to report a year-on-year (YoY) drop in production through the end of 2023, New Zealand and Australia have seen an increase in the latest reported milksolids numbers. 

While the 2023/24 season in NZ has seen a positive increase season to date (December 23) by 1.1%, and 12 months through December by 2.1% both on a milksolids basis, production still has not recovered to the levels seen prior to 2022/2023. 

While Australia’s YoY milk production for December was up 2.2%, it was down 4.6% against a five-year average. For nearly six months, global milk production overall has seen a YoY decrease in comparison to 2022 and 2021. 

The US’s YoY drop of -0.3% and Argentina’s -7.7% for December alongside a reported 2.4% YoY decline for the EU27 nations through November sustains the current uncertainty for global milk production.

The world continues to see delays in shipments that transit via the Panama Canal or would normally go via the Suez Canal/through the Red Sea. 

The two-week delay resulting from shipments having to circumnavigate Africa to avoid the ongoing conflict around the Red Sea has affected delivery times and imposed significant costs. 

The latest report on export numbers from NZ show a YoY decrease of 5.6% for December. However, the export volumes finished the full year up 4.8% against 2022. While export volumes were up for the full year, on a value basis exports were down 7.8%. 

Key products such as WMP, SMP had a YoY increase in volume for December (0.6% and 2.7% respectively), with the overall drop being driven by AMF, butter and cheese (-24.4%, -16.8% and -16.9%), but again all up on the year to date (YTD) basis. 

From the key exporters, only Australia reported an increase of 9% YoY of November exports with 35,000 tonnes of product. EU28 exported 196,000t of product standing for a YoY drop of -14%, followed by the US (156,000t) with -11%, and Argentina (28,000t) -8% YoY decrease of product exported in November.

As NZ heads towards the end of the milk production season with more strength than many expected, the panorama is still quite uncertain for milk production for most of the other key players in the industry. 

Ongoing weather, and economic/political issues that various regions are facing gives us the impression that the coming months will keep seeing some challenges on the supply side. 

Gradually recovering demand bodes positively for dairy product manufacturers in the short run. However, delays on global shipping and increases in derived costs continue to weigh on market behaviour. 

The industry’s ability to adapt to changing market conditions, weather patterns, and global economic trends will be crucial in shaping its trajectory for the coming months in the dairy industry.

MORE: To know more about NZX Dairy Team subscriptions and publications, visit their website.

This article first appeared in our sister publication, Dairy Farmer.

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