Peak milk?

New Zealand milk supply has underperformed over the last two seasons so the sector could well be due for a bounce back in 2018-19 driven by improving yields.

Click image to zoom Tap image to zoom

The 2017-18 season failed to fire through the hot-and-humid summer months meaning production will finish down around 1.3 per cent year-on-year. Early season expectations had been for a 2 per cent to 3 per cent lift.

"Most supply indicators would appear to be pointing toward stability in 2018-19.” 

Click image to zoom Tap image to zoom

All up, stable cow numbers and some improvement in performance should solicit a 2 per cent to 2.5 per cent increase in milk production in 2018-19. As always, weather and pasture conditions will have the biggest say whether this materialises or not.

Peak milk

Peak milk production, new dairy farm conversions and cow numbers all appear to have coincided with the 2014-15 downturn in farmgate returns.

Regional council plan changes to address water quality, a slowing in irrigation development and improvements, high asset valuations, exiting of some marginal/smaller farmers and availability of suitable land to convert have all played a part too.

Milk production will finish the 2017-18 season some 3 per cent below the peak in 2014-15. Cow numbers will have dropped by a similar amount with lower average stocking rates across the sector and per head performance pulling back to the long-run trend of 380 milk solids/cow. 

Click image to zoom Tap image to zoom


Looking forward most supply indicators would appear to be pointing toward stability in 2018-19.

Cash-flow forecasts are shaping up to be similar to the last year, cow numbers are fairly stable and feed/cow conditions heading into winter steady.

A bounceback in per cow performance could be due, but much will depend on how weather/pasture conditions evolve in the spring/summer.

One risk for production in 2018-19 is whether, or not farmers will be caught off guard by the new grading system for Palm Kernel Extract (PKE) concentrations and associated payment penalties Fonterra will implement.

Record high PKE imports of 2,363,371 tonnes over 2017 (a rise of 60 per cent on the previous year) were seen to plug feed deficits that emerged and improve diet balance.

Click image to zoom Tap image to zoom

We suspect there will be more blended feeds used to stay within the new standards. However, this could well cost more and if pasture conditions were to substantially deteriorate at any point this could well weigh on production if farmers are unprepared.

Con Williams is a Rural Economist at ANZ  NZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

19 Sep 2017

Bitter butter battle brewing in NZ?

Sharon Zollner | Chief Economist New Zealand, ANZ

High European prices due to falling product and low inventories are affecting the domestic market.

02 Nov 2016

Kiwis milking the tourism boom (as well as cows)

Sharon Zollner | Chief Economist New Zealand, ANZ

For some time now New Zealand has ridden on the Friesian’s back as the country’s dairy industry helped the nation prosper. Now, for the first time in over five years, tourism has taken back the mantle as the country’s biggest export sector.