New Zealand dairy processing giant Fonterra this week sharply reduced its forecast farmgate milk price for the 2014/15 season from NZ$7 to NZ$6 per kg MS. This converts to 26.3 cent per litre when adjusted to Irish milk solids at today’s currency exchange rate.

Chairman John Wilson said the lower forecast price reflected continuing volatility, with the GlobalDairy-Trade price index declining 16% since the start of the season on 1 June.

He said: “We have seen strong production globally, a buildup of inventory in China and falling demand in some emerging markets in response to high dairy commodity prices.

ADVERTISEMENT

“In addition, the New Zealand dollar has remained strong. Our milk collection across New Zealand last season ending 31 May 2014 reached 1,584 million kg MS – 8.3% higher than the previous season.”

Meanwhile, Europe’s recently established Milk Market Observatory last week summarised the current dairy market position as follows:

  • Downward pressure has been increasing on milk prices since March because of higher supply in the main producing regions (EU, US, NZ). After the seasonal production peak in May, dairy commodity and spot milk prices started recovering.
  • Availability and quality of maize and grass is good and feed prices are decreasing.
  • Milk collection is expected to show less pronounced growth percentages in the second half of the year compared to the same period last year, where significant increases were registered.
  • A possible El Niño weather event – predicted by some forecasters but yet to be confirmed – would affect world milk production.
  • Household consumption is at best stagnating (except for butter and cream used for home cooking). Industrial customers (buying dairy ingredients to manufacture processed food) and third country buyers are not expected to be active on the demand front until September.
  • The butter market is relatively balanced with stable prices and limited activity.
  • The cheese market is undergoing a strong recovery.
  • Russian imports have been stable with regard to cheese up to now and have been increasing for butter.
  • Demand is expected to rebound once buyers believe that the floor has been hit.
  • From 2012 to June 2014, dairy investments in Europe have been reported for a total of €5.5bn covering 190 investment projects involving 120 companies. Not only EU companies are investing in Europe, but also Chinese and NZ companies. Contrary to the past where investments in the EU mainly targeted cheese production, the majority of new projects are in the area of dry dairy products.