Although global trading patterns are still recovering from the Covid pandemic, the positive outcome for New Zealand is that it has strengthened demand for the kind of foodstuffs we produce.
In particular the dairy trade is booming and though the current production season is beginning to tail off, Fonterra’s latest global dairy auction showed demand, far from falling off, is still very strong, with prices for whole milk powder 51% higher than at the level they were at this time last season.
Dairy products are the country’s largest commodity export and Fonterra estimates milk payments to its 10,000 farmer suppliers for this season would contribute about $11.5 billion to the economy.
The encouraging factor for those producers is that there is every sign the high prices being earned at present will be sustained into the next season.
Last month, Fonterra raised its forecast milk price for this season to between $7.30 and $7.90 kg/MS, with a mid-point of $7.60. Some analysts are forecasting $7.70 for this season, ahead of Fonterra’s mid-point.For next season, the forecasts range between $7.30 and $7.50.
While the global dairy trade price index slipped 0.1% from the previous auction a fortnight ago, prices for whole milk powder, which has the most impact on what farmers are paid, gained 0.4% to an average US$4097 (NZ$5713) a tonne.
What may be an irritant for the industry, currency movements are taking some of the gloss off the prices being earned.
With the rising Kiwi currency, the latest auction brought overall prices -2.0% lower in NZ dollars. The key WMP and SMP prices were virtually unchanged in US dollars. The best performer was cheddar cheese, up +1.2% in US dollars but even that was not enough to record a gain in NZD.
The strong market is largely driven by China where a wealthier population and an increased focus on health and wellbeing after the Covid-19 pandemic is stoking demand for better nutrition.
North Asian buyers were back in force, taking up their usual positions as the major buyer.
At the latest auction, 99% of the whole milk powder on offer was sold. There were slight downward movements with both of the cream group products. That was attributed in part to the extra volume of butter on offer.
Fonterra indicated previously it is producing more butter to take advantage of the high return for it. That was sensible, with butter topping $US5,100 a tonne.
Given the outstanding work of the dairy industry, how will the government react when it comes to deal with the Climate Change Commission’s proposal to cut dairy cow numbers by 15%?