Varied forecast from Danone

Danone released first quarter results recently and the following comment from the company has relevance for dairy farmers: “In 2015, Danone also anticipates marked but varied trends in the cost of major strategic raw materials, particularly milk – lower prices in Europe and the US in the first half, with a rebound likely in the second half of the year, and gradual price increases in emerging countries all year long. Altogether, Danone anticipates a moderate rise in the cost of main raw materials and packaging in 2015.”

US milk flows

Statistics released from the USDA this week show US March milk production was up 1.1%.

Milk production in the 23 major states during March totalled 16.9bn lb, up 1.1% from March 2014. February revised production at 15.1bn lb, was up 1.7% from February 2014. The February revision represented a decrease of 10m lb or 0.1% from last month’s preliminary production estimate.

Production per cow in the 23 major states averaged 1,959lb for March, 2lb above March 2014. This is the highest production per cow for the month of March since the 23-state series began in 2003.

The number of dairy cows on farms in the 23 major states was 8.62m, 86,000 head more than March 2014, but 4,000 head fewer than February 2015.

Fonterra News

Prices on the GDT trading platform fell sharply at the most recent auctions, giving up all the ground gained in January and February.

Fonterra suggests weak import demand from China and Russia remain a key factor in the global market. China’s imports in January were 36% lower than in January 2014, with volumes back to those prevailing in the fourth quarter of 2014.

Full-year data for Russia shows imports fell 26% in 2014, and there is little reason to expect any significant recovery while the trade embargo on the EU and other countries remain in force.

Milk supply slows

Milk production growth in the major exporting countries has slowed further. The EU posted negative growth in January for the first time in over 12 months.

Milk growth in Australia and New Zealand was less than 1% in January, and in February US milk production was less than 2% above prior year levels, well below industry expectations. Eucolait expects EU milk production in the first quarter of 2015 to be the same as the same period in 2014.

As reported above, most commentators expect US production to stay relatively strong in 2015, and the USDA is projecting 2.8% growth, up from 2.4% in 2014. The 2014/15 season in New Zealand is likely to finish between 1% and 2% below 2013/14, due to both dry weather and cutbacks in supplementary feeding. In Australia, milk flow is on track for a 2% increase in the 2014/15 season.

Exports from the EU remained strong in December, but provisional figures for January show no year-on-year growth. Exports fell in January from the US (by 23%, the biggest fall in many months) and Australia (by 3%), and rose from New Zealand (by 4%).

SMP was the big export driver in January from the EU, Australia and New Zealand, whereas SMP exports were particularly weak from the US.

Prices on the CME and NZX futures markets softened during March, and while commentators are still projecting global prices to rise in 2015, they are projecting most movement to occur during the second half of the year.

NZ weather

Weather plays a big part on market sentiment and, according to the US Climate Prediction Centre, El Niño conditions are in effect now, and there is a 50-60% chance they will continue through the Northern Hemisphere summer 2015.

In New Zealand, drought conditions have eased in most areas, although pastures in much of Canterbury remain drier than usual.

Dry conditions remain of concern in dairying regions of Australia.