Dairy farmers in New Zealand are to cut their herd for the first time in more than decade in response to low milk prices which are leading producers to “question business models”, and turn some farms back to beef.
The US Department of Agriculture’s Wellington bureau forecast that the total New Zealand dairy herd, having risen by some 1.8m head to approaching 7m head over the past decade, will fall in 2016 for the first time since 2005.
The decline will be evident in a drop in the dairy cow herd, including in-calf and dry cattle, to 5.42m head next year, from “a peak” of 5.66m head in 2015.
And it is being forced by low milk prices which are “leading to dairy farmers questioning their business models and contemplating major changes on farm”, the bureau said in a report.
‘Cows reduced significantly’
Indeed, producers in New Zealand, the top milk exporting country, are mulling plans “which would result in cow numbers being reduced significantly”.
This move would “lower the expense on supplementary feed and off-farm grazing of replacement stock and non-lactating cows”, the report said.
The bureau added that while there was “no hard evidence” of such major changes occurring “to any extent”, levels of cow slaughter were likely to stay “elevated”.
“Most dairy farmers are in a process of cutting down their total cattle numbers by 3-6% in response to the low milk price payouts and the need to reduce costs.”
‘Hefty rise in prices’
The comments come amid some signs that world dairy markets have found a bottom, with the last GlobalDairyTrade auction, two weeks ago, showing a 14.8% rebound in prices from 13-year lows, and an event later on Tuesday is expected to see a further increase.
“Tonight’s GDT auction should, given futures price action, should see a hefty rise in prices,” said Tobin Gorey at Commonwealth Bank of Australia, referring to strong prices on New Zealand NZX futures exchange.
Whole milk powder for November nudged a further $10 higher on Tuesday to $2,250 a tonne, while November skim milk powder soared $140 to $2,050 a tonne.
Indeed, the increase at today’s GDT “looks likely to be around 15%”, Mr Gorey said, although adding that “the swirl of global and China macro factors adds a degree of uncertainty”.
‘Has rarely been as unpredictable’
However, even prices at these levels imply milk values well below cost of production for New Zealand farmers, and many observers do not foresee a sustained recovery in values until 2016.
Indeed, Danish-based dairy giant Arla Foods on Monday followed rival FreislandCampina in issuing a cautious forecast for a global dairy market it said “has rarely been as unpredictable as now”.
“Our long-term view is that the market will turn again in the first half of next year,” said Peder Tuborgh, the Arla chief executive, adding that “unfortunately 2015 is proving to be as challenging as we anticipated”.
‘Booming exports to China’
The USDA bureau said that New Zealand dairy farmers “are now to endure a second season of very low milk prices and possibly the prospect of only a marginally profitable milk price in the 2016-17 milk production year”.
The dynamics are prompting some farmers who formerly provided support to the dairy industry, for example through grazing stock, to switch back to beef, a sector where sentiment is “positive”.
Indeed, the total New Zealand beef herd is poised to show rare expansion in 2016.
The bureau flagged “high-farmgate beef prices of the last 12 months, which are forecast to continue for another 12 months to two years”.
New Zealand beef exports to China “are booming”, up 44% in the first half of 2015, and “likely to reach between 60,000-70,000 tonnes for the full year”.
(Source – http://www.agrimoney.com/news/new-zealand-dairy-herd-to-shrink-for-first-time-in-a-decade–8716.html)