Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Fitch sees milk price recovery beyond 2016

Fitch Ratings warns rise in European milk production will delay price recovery beyond 2016

By Fiona Rotherham

April 1 (BusinessDesk) - Credit rating agency Fitch Ratings said continued growth in European milk production to ramp up exports will further delay a recovery in global milk prices until beyond the end of this year.

The supply growth has been compounded by weak demand, mainly due to subdued Chinese demand and a Russian embargo on major Western dairy exporters.

Average prices on the GlobalDairyTrade auction fell by around 38 percent in 2014/15 and around 20 percent in the 2015/16 season to mid-March.

Fitch said that price volatility will continue in the medium term due to regulatory changes, geo-political factors, and the global imbalance between milk supply and demand since 2014.

“The absence of short-term incentives and only a modest supply response so far are likely to prolong a recovery in prices beyond 2016,” the ratings agency said. “Longer term, we believe the fundamentals of dairy demand remain strong.”

That doesn’t bode well for cash-strapped Kiwi farmers who are more exposed than most to the global dairy market due to New Zealand’s high number of exports and small domestic market.

Last year’s removal of milk production quotas in Europe is the main reason milk supply has been slow to decrease as the European manufacturers utilise existing production capacity and export more, Fitch said.

European Union exports increased by 6 percent in milk equivalent in 2015 despite Russia, which used to import about 1.5 percent of European milk output, shutting its doors. Europe remains the world’s largest dairy exporter accounting for nearly a third of global export sales.

Elsewhere producers have responded to lower prices with New Zealand, the world’s second-largest dairy exporting nation, dropping production this season as farmers reduced feed and culled more cows to cut costs.

Fonterra Co-operative Group has reported a 4 percent decline year-on-year in its New Zealand milk collection this season.

Across the Tasman Australian dairy producers have responded similarly, with Dairy Australia forecasting a decline in milk production of 1 to 2 percent in the 2015/16 season. In the US, dairy production continues to increase, although strong domestic demand has reduced dairy exports.

On the demand side, Fitch said the imbalance is mainly led by the largest and formerly second-largest importers, China and Russia, buying less. Increases in other markets such as Japan and south-east Asia have only partially offset those large declines.

China’s demand for whole milk powder fell 47 percent in the October 2015 year, which was a major contributor to the overall 8 percent decline in the country’s dairy imports.

The embargo on Western milk imports to Russia, now extended until August, resulted in a 75 percent decline in imports over the October year.

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

$7.5 Billion Surplus: Government Accounts "Show Strong Economy"

“The surplus and low levels of debt show the economy is in good shape. This allows the Government to spend more on infrastructure and make record investments in health and education,” Grant Robertson says. More>>

ALSO:

New OIO Application Trumps Judicial Review: OceanaGold Cleared To Buy Land For Waihi Tailings Expansion

In a surprise turnaround, the government has given OceanaGold a greenlight to buy land to expand its Waihi mine after the application was previously turned down by Land Information Minister Eugenie Sage. More>>

ALSO:

Christchurch Rebuild: Fletcher Sued For $7.5m Over Justice Precinct

Fletcher Building is being sued for $7.5 million by utilities contractor Electrix, one of the subcontractors on the Christchurch Justice and Emergency Services Precinct. More>>

Three New Drugs: PHARMAC Signs Bundle Deal For More Cancer Medicines

420 New Zealanders with lung cancer, breast cancer, multiple sclerosis and respiratory disease will benefit each year from a bundle deal PHARMAC has finalised with a medicine supplier. More>>

ALSO:

"Levels Playing Field": Government Responds To Electricity Price Review

The changes announced today include: • Supporting new and independent retailers by requiring the big power companies to sell into the wholesale market at affordable rates. • Extending discount rates to all customers • A pilot scheme to help customers who have not switched power providers before to shop around for better deals... More>>

ALSO: