The Weekly Dairy Report: El Nino appears a fizzer as dairy prices get worse at auction


The transformation continues for dryland country in Canterbury, as the region received between 50-100mm of rain last month, and less hot windy days to ensure every drop was well utilized by pastures.

Many pasture growth rates on irrigated pastures are ahead of demand and the surplus is being conserved into silage or baleage.

The rest of the country has had a better summer than predicted and weather forecasts of a severe droughty El Nino have not come to pass, resulting in more milk produced,  with one bank’s dairy analyst predicting a 3% drop in milk flow, up from the past figure of -6%.

Mating is now finished and saleyards have been full of service bulls and another influx of later dry cows as managers look for cash to relieve their very tight budgets.

Spore counts have risen with the warm moist weather in the upper North Island and water troughs are being treated with zinc as the at risk period starts.

And this week things got even tougher, as Fonterra followed both Westland,  Open Country Cheese and Synlait, in adjusting the forecast downwards to $4.15/kg ms for the year.

As suggested by the milk futures trade, last night’s auction result confirmed this pessimistic forecast with a significant price drop of 7.4%, with all main products falling in price and was lead by the key product whole milk powder, which suffered a 10.4% fall to below US$2000/tonne.

Too much global supply of milk is at the core of these unsustainable price issues and while many countries have reduced production, the Europeans stung by the embargo of exports to Russia, have been slow to adjust.

Prices they are receiving are well below the cost of production so they will eventually capitulate, but the trend is the recovery will be slow and farmers may have to wait for another 18months before surplus cash returns to their accounts.

Some evidence is being seen that the banks patience is wearing thin, with a large recently developed dairy enterprise near Taupo in the hands of the receivers, and with last nights auction pricing more are sure to follow.

But in contrast, five neighbouring dairy farms in Southland have been sold for $41 million to a US and NZ owned partnership, and gained OIS approval to further develop these properties.

Reports suggest a swing to wintering pads and barns in Southland as managers endeavour to reduce the cost of wintering off, and meet the tough environmental standards relating to nutrients leaching out of soils under wet conditions.