By Cristina Alvarado. Alvarado leads the dairy data and insights team at NZX.
As the curtain fell on 2023, New Zealand’s dairy industry found itself navigating a landscape of cautious optimism in the last months.
The final quarter of the year was marked by a series of shifts in supply and demand factors, presenting both challenges and opportunities for the market.
In December, Global Dairy Trade (GDT) events showcased a promising rebound in prices, together with September and October results, after the sharp drop-off seen between May and August.
This upward trend continued into the first GDT event of 2024 on January 2, with an overall average index price rise of 1.2% to US$3363/t.
While fluctuations were observed across product categories, whole milk powder (WMP) and fats saw notable price increases, signalling a potentially bullish outlook for these commodities.
On the production front, New Zealand demonstrated resilience amid fluctuating conditions. Despite a 0.5% decline in average milk production tonnage in November, the country recorded a 0.8% year-on-year increase on a milk solids basis, following on a similar trend from October’s production.
This can be attributed to favourable pasture growth conditions due to the delayed onset of El Niño. However, as we move further into 2024, and as noted by NIWA, with December’s dry weather and the expectation of further drought, the impact of El Niño could pose significant challenges to production levels.
Internationally, the picture was more varied. The United States and Europe reported declines in milk production, with a 0.5% YoY decrease in November for the US and a 1.7% drop in October for Europe.
The later had a bigger drop in comparison to the 1.03% decrease in September, due to Ireland’s 13% decrease and the fact that France fell 4.5%, Netherlands 2.4%, Italy 1.4%, and Denmark 0.4%.
On the downward trend, Argentina and Chile also saw a decrease of 4% and 0.8% YoY respectively for November. Uruguay, China, and Australia, on the other hand, registered a milk production increase for November with 2.7%, 1.6% and 6.3% respectively.
There is a bearish sentiment for 2024 in regions such as the US and Europe, after regulations, weather and culling had direct influence on 2023’s production.
NZ’s export performance painted a positive picture, with global dairy exports rising 6% year to date. November alone saw a 22% YoY increase, indicating robust demand from key markets.
Interestingly, this growth was not driven solely by traditional trade partners like China, the US, Japan and Saudi Arabia. Countries such as Bangladesh, Thailand, Singapore and Indonesia emerged as significant buyers of products like WMP, SMP, and AMF, reflecting a diversification in NZ’s dairy export markets. All key dairy products, except for Infant Formula, saw an increase YoY for November.
However, the global landscape presented its share of hurdles. Logistical challenges, including congestion fears due to drought in the Panama Canal and tensions around the Suez Canal and Red Sea areas, posed significant obstacles.
This has led to some carriers take the decision of navigate longer routes, increasing cost and delivery time, to be able to assure the safe transport of their shipments. Despite these inconveniences, NZ’s strategic geographic location, with dual access to the Indian and Pacific Oceans, provides a competitive advantage, facilitating smoother delivery to key trade regions.
The ongoing impact of geopolitical and economic factors, coupled with supply and demand dynamics, will continue to shape the trajectory of dairy prices.
The coming months will reveal the extent to which policy changes, trade initiatives, weather and global supply chain disruptions influence the dairy landscape in New Zealand and the rest of the world.
As we navigate the early stages of 2024, the New Zealand dairy industry stands on relatively solid ground, buoyed by promising GDT results, resilient production levels, and robust export performance.
However, the path ahead is not without its obstacles. 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 rest of the year.
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This article first appeared in our sister publication, Dairy Farmer.
