Milk prices will stay elevated, but the rally in butter prices could founder, the European Commission said, even as Fonterra underlined the disappointing start to 2017-18 for New Zealand milk output.
Milk prices – which at a farmgate level rose by one-third in the year to July in the European Union – likely saw a “further increase” last month, the European Commission said, following a meeting with industry representatives.
And milk values are “expected to remain firm in the coming months”, the commission said, flagging growth in global trade, with world diary exports rising by 6% in July on a milk-equivalent basis.
“China leads global imports,” with 27% growth, followed by South East Asia with 12% expansion, the commission said, noting that trade in skim milk powder “rocketed in July, helped by low prices”.
‘Possible price correction’
However, the commission was more downbeat on prospects for prices of skim milk powder, which it said are poised to fall from already-weak levels thanks to the expiry of this year’s EU intervention buying scheme.
And for butter, it forecast a “possible price… correction from levels”, which it saw as potentially diverting some demand to alternative products.
“Higher butter prices may lead to substitution by vegetable fats,” the commission said.
‘Substantial production increases’
The comment came despite an assessment that, even with record butter prices, processors were better off focusing on making cheese – thanks to the extent of the weakness in values of skim milk powder, which is also manufactured during butter production.
The commission also factored in ideas that 2017-18, which started in July in August and in June in top exporter New Zealand, “has started with substantial increases” in milk production in both countries, with prospects pointing “to further expansion”.
Dairy Australia earlier this month reported a 2.7% rise to 653.9m litres in Australian milk output for July.
However, Fonterra, which processes the vast majority of New Zealand milk, on Friday reported that a rapid start to the season for output, with volumes up 7% in July, had gone into reverse, thanks to unduly wet weather particularly in South Island.
August collections dropped 2% to 93m kilogrammes of milk solids, leaving overall volumes for the first three months of this season flat at 122 kilogrammes of milk solids.
‘Continued wet weather’
“Continued wet weather throughout August has proved challenging for farmers and has impacted milk collection volumes,” the co-operative said, while restating a forecast made earlier this week of volumes rising by 3% over 2017-18 as a whole.
The conditions have been blamed for a drop in farm sales in New Zealand too, with deals in the June-to-August period down 21% year on year, according to data from real estate institute Reinz.
Brian Peacocke, rural spokesman said that “record rainfall is the current frustration for land owners in many regions as they grapple with soggy soil and pastures under pressure.
“Conditions in such areas are extremely difficult for farmers in the pastoral and arable sectors alike.
“In this environment, those considering making their properties available for sale simply do not want outsiders in sight,” Mr Peacocke said, terming the drop in sales volumes “hardly surprising.”