Dairy Sector: Dairy Outlook Bullish, But With Ups And Downs
June 23rd, 2010
A bullish assessment by MAF in its Situation and Outlook report for the primary sector suggests dairy exports will soar almost 60% by value over the next four years. Total sector exports will hit $15.7bn by the year to May 2014, with the milk payout tipped to reach $7.21/kg, the highest since 2008′s record payment. The key rider is to have faith in the Treasury’s projections for the NZ dollar, which MAF relies on, and, unlike many bank economists, has a slow depreciation to US66c in 2012 and to just US51c in 2014. As MAF itself notes, ideas on future exchange rates “vary widely” and the counter argument would be the kiwi gains as the local economy strengthens.
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Before farmers start spending the forecast riches though, the track of milk payments starts with an 8.2% decline in the year to May 2011, to $5.60/kg, sliding again to $5.24 in 2012. Spot prices for butter, skim milk powder, whole milk powder and cheese peaked in December last year, reflecting inventory rebuilding by customers. FOB prices may start declining in the final quarter of this year as farmers in NZ, the US and the EU are expected to ramp up production, creating an excess of export supply to demand.
Longer term increased wealth in developing countries means a growing middle class, which typically has a taste for dairy products. Against this, MAF says emerging markets are likely to ramp up their own production of milk at a time when developed countries will be looking to export more and as dairy supply chains become more efficient.
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