Shortage boosts milk production
China cannot produce enough milk for its domestic market and will rely on imports in the short term, especially from New Zealand and Australia, Rabobank says.
Owners of small to mediumsized farms have exited the industry because it is not profitable, as prices have fallen by about 6 per cent, and production in the main dairy provinces of Mongolia, Hebei and Henan has dropped 0.4 per cent.
New Zealand-based dairy analyst Emma Higgins said China was expected to absorb New Zealand and Australia’s peak spring production.
Over the last year China has imported 13 per cent more dairy products than the year before. However it is uncertain whether it will continue to buy at the same rate into next year.
‘‘Chinese milk supply has failed to keep up with demand, meaning that Chinese buyers have been increasingly active in recent months, and this is a trend that is expected to continue into 2018 – albeit, at a lower rate,’’ Higgins said.
In its latest dairy quarterly report, Rabobank forecasts a farmgate milk price of $6.50 per kilogram of milksolids for New Zealand farmers, at variance with the present Fonterra forecast of $6.75, and recently affirmed when it released its annual results.
Rabobank said dairy producing regions such as Europe, the United States, South America and Oceania had all seen increased growth as prices to farmers have risen.
New Zealand exported 5 per cent more dairy for the three months to July 2017 than for the corresponding period last year, a result of milk flows being 3 per cent higher over the same period and boosted by demand from buyers in key export markets.
Although spring production is down 1.6 per cent on last year because of wet weather, especially in dairy heartlands such as Waikato and Taranaki, Rabobank is still picking a growth of between 2.5 and 3.5 per cent for the total year.
By contrast with the North Island, the lower half of the South Island has had good pasture cover heading into the flush of the season, and is even tending to be on the dry side.
Farmers were now starting to spend on improvements as well as pay off debt. Better cash flow will also help farmers who have to buy in supplementary feed or replant crops.
Higgins said the outlook for commodity markets was for a balanced market to continue in the remainder of the year.
‘‘We’re not expecting to see much downside pressure on global dairy prices until early 2018, when the Northern Hemisphere ramps up their milk supply.’’