Archive for whole milk powder value

New Zealand Milk Payout Soars: Record Cheese and Butter Profits

New Zealand’s milk payout hit record highs in September 2024. What does this mean for dairy farmers and global markets? Dive into our expert analysis.

Summary:

Is your dairy business ready for a boost? The latest milk payout report from New Zealand has brought encouraging news amidst global challenges. The September 18, 2024, report highlights a notable surge in milk streams, with butter, AMF, and SMP emerging as the most profitable products, pushing estimated payouts to NZD 9.51/kg. Fonterra’s revised forecast underscores a positive trend, with the season-to-date GDT average increasing to NZD 9.44/kg MS. While North Asian purchases have declined, the Middle East and North America are increasing their buying activity. The upcoming US Federal Reserve rate cuts could cause turbulence in Kiwi markets. StoneX estimates the milk priceto be $9.21, while the SGX/NZX MKP is at $9.05, and the latest GDT auction result shows a 0.8% increase. US milk production slipped, the EU showed modest growth, and Argentina exceeded expectations for the third month. Despite WMP remaining less lucrative, with an NZD 9.51/kg payment, the market situation is favorable for a stable future.

Key Takeaways:

  • Milk stream values increased overall, with butter, AMF, and SMP remaining top destinations.
  • Cheese saw the most significant value increase, positioning it as the second most profitable milk destination.
  • The latest GDT auction indicates a potential payout of NZD 9.51/kg, boosted by a slight increase in SMP and WMP prices.
  • Fonterra raised its seasonal milk price forecast, and GDT results brought the season-to-date average to NZD 9.44/kg MS.
  • North Asian purchases decreased from last year but still dominate purchase volumes, particularly for SMP.
  • The Middle East and North America increased their dairy purchase volumes compared to last year and the last event.
  • Impending US Federal Reserve rate cuts could impact Kiwi markets, adding potential near-term volatility.
  • US milk production for July dropped by 0.4%, while EU production in June saw a 0.7% uptick.
  • Argentina’s milk production for July performed better than expected for the third consecutive month.
  • Global dairy imports for June fell by 5.6%, though demand remained resilient overall, with China showing unexpected strength.

This season, all eyes are on New Zealand’s dairy sector, which has achieved record earnings. Fonterra’s milk price range projection for this season, indicating an approximate payment of NZD 9.51/kg, has sparked considerable interest. The most recent projection from Fonterra provides insights into the dynamics of global demand and a comparison of milk output in the US, EU, and Argentina. Join us as we delve into these changes and their broader implications for the dairy industry and other sectors.

Milk Streams Surge: Butter, AMF, and SMP Lead the Pack; Cheese Shines Brightly

The value of milk streams has significantly increased, signaling promising developments for dairy producers. The three most lucrative products, skim milk powder (SMP), butter, and anhydrous milk fat (AMF), remain profitable. The rise in SMP value has offset the fall in butter and AMF values, maintaining their category’s value.

Over this time, cheese has been a standout performer, with the most gain in value. Cheese, in particular, had a 0.32 NZD/kg increase in value, solidifying its ranking as the second-most lucrative destination for milk.

Conversely, despite a gain of 0.11 NZD/kg in this event, whole milk powder (WMP) remains the least lucrative destination. The latest GDT auction results, in particular, would provide an anticipated payment of NZD 9.51/kg, suggesting that dairy producers who concentrate on these lucrative milk sources have a bright future.

The Latest GDT Auction: A Mixed Bag for NZ Dairy Farmers 

The most recent GDT auction results mixedly impacted dairy producers in New Zealand. Notably, due to modest increases in the price of powder, particularly SMP and WMP, the expected payment is a respectable NZD 9.51/kg. Our season-to-date GDT average increased by NZD 0.01/kg, reaching NZD 9.44/kg MS. This modest but welcome increase is particularly significant given the market volatility.

However, only some dairy products were successful. The fat markets witnessed some falls, but the GDT index was up 0.8%, less than anticipated. Butter and anhydrous milk fat (AMF) decreased by 1.7% and 1.2%, respectively. Considering their typical profitability, these lower statistics are a bit worrying.

Conversely, the powder markets performed relatively well. Whole milk powder (WMP) climbed by 1.5%, while skim milk powder (SMP) increased by 2.2%. Fonterra’s most recent projection indicates that these price increases for powder were sufficient to keep the price of milk falling into these categories stable.

Remarkably, while investing less than the previous year, North Asian purchasers still make up over half of the total purchases. However, areas such as the Middle East and North America saw increased buying volumes compared to last year and the previous event. This indicates a change in the demand for dairy products worldwide, which may have longer-term effects on marketing tactics.

The general market situation is favorable even if there is considerable volatility in some dairy products. The season-to-date GDT average has slightly increased, while SMP and WMP have performed well. These developments point to a more stable payment environment in the future. What say you, then? Are these encouraging enough results to maintain the momentum?

Regional Dynamics in Dairy Purchases: North Asia’s SMP Dependence and Rising Middle Eastern and North American Demand

The recent GDT event offers an intriguing glimpse into regional purchasing tendencies. Even though North Asia’s purchase volumes decreased from the previous year, they still made up more than half of all purchases. One of the main ingredients in this amount is skim milk powder (SMP). North Asia’s continuous dependence on SMP underscores its pivotal position in its import strategy for dairy products.

However, this pattern was not seen in North America or the Middle East. Both areas’ purchasing volumes rose not only from the prior event but also from the preceding year. This increase points to both an increase in demand and a calculated move to secure dairy goods in the face of volatile international markets. The way buying habits have changed in these various marketplaces highlights how the dairy industry constantly changes according to local and international economic signals.

Challenges Beyond the Numbers: Labor Shortages, Rising Costs, and Regulatory Pressures 

Despite the encouraging statistics, dairy producers nonetheless face several formidable obstacles. One of the primary problems is the ongoing labor shortage. The sector dramatically depends on trained laborers, and locating them is becoming increasingly difficult. Immigrant labor is increasingly essential to many farms, but restrictive immigration laws have made the issue worse. Some farmers use automation and robots to bridge the gap, but not all can afford these solutions.

Increasing input prices are another major obstacle. The cost of gasoline and electricity is still relatively high, and feed costs have skyrocketed. Due to these elevated costs, farmers are left with smaller profit margins. Some have embraced more environmentally friendly strategies to reduce long-term expenses, including enhancing feed efficiency and using renewable energy. Nevertheless, there is a significant up-front cost associated with this shift.

Regulatory constraints provide an additional level of intricacy. Environmental laws about water use and methane emissions are becoming more stringent, particularly in the European Union and New Zealand areas. Although these laws aim to make the sector more sustainable, they require expensive modifications and compliance procedures. Many farmers are interacting with legislators to strike a compromise that safeguards their livelihoods and the environment.

The dairy sector is well-positioned to meet future challenges and opportunities. Innovations in diet and genetics have the potential to enhance resilience and production. Business organizations and policymakers are advocating for improved labor laws and support networks. Even in the face of an uncertain future, dairy producers are demonstrating remarkable adaptability and perseverance. This adaptability instills optimism about the industry’s ability to navigate future changes.

Fed Rate Cuts: A Turning Point for Kiwi Dairy? 

The anticipated rate reduction by the US Federal Reserve could significantly impact Kiwi markets. The Federal Reserve has indicated a potential rate cut of 200 basis points by the end of 2025, which could lead to short-term volatility. But what does this mean for dairy producers in New Zealand? Lower US rates could lead to a decline in the US currency, strengthening the NZ dollar. If the Kiwi currency appreciates, New Zealand’s dairy exports could become more expensive for consumers abroad, potentially reducing demand. This information equips dairy professionals with the knowledge they need to navigate potential market shifts.

The Reserve Bank of New Zealand (RBNZ) needs help at home. In light of an early indication of a Q2 economic contraction, the RBNZ may prioritize growth over inflation in subsequent sessions, approving massive rate cuts of up to 50 basis points. Slashing interest rates might reduce borrowing costs for the dairy sector, enabling farmers to spend more on growth and productivity. However, there is a double-edged sword: export competitiveness may decline if these cutbacks result in a higher New Zealand currency.

Trends in the world economy also have a lasting impact. EU milk output increased by 0.7% in June, indicating a resurgence in the industry. In the meantime, Argentina’s output is declining, although more slowly. Global supply variations may impact worldwide dairy pricing. The slight improvement in Chinese imports for July and August, which are above expectations, still adds another complication. New Zealand dairy producers stand to gain from increased global demand, higher prices, and market stability in China.

Amidst this complex dance of domestic and international economic factors, the dairy sector in New Zealand will need to watch international market trends closely, as well as RBNZ’s rate choices and Federal Reserve policies. Farmers must be knowledgeable and flexible to overcome these obstacles and take advantage of new possibilities.

US Milk Production Faces Uphill Battle with Herd Size and Milk Yield Declines

The July statistics are consistent with the declining pattern of US milk output. The USDA’s lower adjustments to June statistics and a 0.4% drop from the previous year’s levels have created a problematic situation for the dairy sector. According to the adjustments, the herd size and cow milk output have been significantly reduced. The USDA has increased the herd size by 15,000 head, bringing attention to a more significant problem: a lack of replacement heifers.

Due to lower herd numbers, fewer cows are available to satisfy the needs of milk production, and this problem is made worse by the absence of healthy replacement heifers. This is a significant problem for dairy producers. It becomes harder to sustain production levels if there aren’t enough replacement heifers. Due to this shortage, producers are forced to depend primarily on the current herd, which might put stress on resources and cause sustainability problems in the long run.

Furthermore, while July’s milk’s high solids content contributed to a 1.4% increase in component-adjusted production, it was hardly enough to offset the overall drop in raw milk output. These tendencies have wider ramifications, which are concerning. Lower milk yields and dwindling herds threaten many dairy farms’ capacity to remain profitable and operate as a means of production. The industry must overcome this significant obstacle to maintain development and stability in the future. The shortage of replacement heifers is not simply a temporary issue.

The current patterns in US milk production highlight the growing difficulties dairy producers face. The changes made by the USDA suggest a continuous battle to sustain milk production and herd numbers, which is made worse by the crucial problem of replacement heifers. This environment presents the sector with significant obstacles and chances for strategic changes and breakthroughs.

EU Dairy Farmers Poised for Growth: June 2024 Brings Renewed Optimism

Promising trends have been seen in the EU milk production scenario, especially in June 2024. There has been a notable rise in fat and protein levels over the previous year, resulting in a 1.3% year-over-year increase in component-adjusted output. Considering the four months of stagnation before, this is a noteworthy reversal.

European dairy producers have excellent margins, partly because of rising butter prices and falling feed prices. We expect further expansion in EU milk output with these attractive margins. Analysts anticipate more robust growth starting in September as the market digests significant losses from the prior year.

According to the most recent figures, the headline milk output for the EU27+UK in June increased by 0.7% over the previous year, slightly better than anticipated. These indicators point to an increasing level of stability and profitability for farmers in the EU dairy industry.

Argentina’s Dairy Sector: Defying All Odds Amid Economic Turbulence

Argentine milk production has seen a wild ride this year but has also shown some unexpected resiliency. The year-over-year decrease in milk output in July was 4.8%, surpassing the expectation of -6.1%. The component adjustment reduces the decline to only 4.4% YoY. The dairy sector is taking notice of this third month’s continuous outperformance.

Why is this performance better than anticipated? The main drivers are record margins and high milk prices. Argentine dairy producers have been able to take advantage of these favorable circumstances at a time when many predicted they would face difficulties. Despite difficult meteorological and economic circumstances, farmers are encouraged to increase output by increasing margins, which not only helps them break even but propels them into profitability.

The prognosis for milk production in Argentina through 2024 is still cautiously hopeful. Even if the present trend points to further progress, it’s crucial to remember that total yearly output may still be less than 5% of what it was in prior years. Headwinds arise from high input costs and possible market changes. But if the climate of favorable margins continues, don’t be shocked if Argentina once again astounds the market with its tenacity.

Global Dairy Imports: June Dips but Resilience Shines Through 

June saw a decline in global dairy imports, down 5.6% from the previous year. The Global Dairy Import Demand Index, which does not include volatile economies such as China, Russia, and Venezuela, exhibits a similar pattern. Even with the current state of the GDP, the price of dairy products, and crude oil, June’s import data surpassed projections. This implies that demand is still relatively strong, even with the dip in the second quarter.

There might be a few variables at work in this situation. Global GDP growth rates are modest, indicating somewhat consistent but not exceptionally robust consumer spending power. The cost of dairy has varied, with specific products doing well while others have not. Crude oil prices have fluctuated, which affects transportation costs and total import charges.

The tale becomes intriguing regarding China, the biggest importer of dairy products worldwide. Chinese imports outperformed forecasts in July and early indications for August. However, the stability of China’s domestic market is still up for debate. Although better than anticipated, this result doesn’t wholly allay worries about continued demand in the area. Although the global dairy industry is resilient, keeping a careful eye on the dynamics as they continue to be complicated is still essential.

The Bottom Line

Finally, the dairy sector in New Zealand is experiencing tremendous success. That is shown by record payments and notable increases in milk streams, especially for butter, AMF, SMP, and cheese. This growing trend is reinforced by Fonterra’s favorable prognosis and the most recent GDT auction results. However, we are reminded that nothing in this sector is static because of regional dynamics and variations in the worldwide market.

What does this signify for the dairy industry’s future? What effects may rate reductions and changes in the world economy have on your business? It’s more important than ever to keep up with current developments. Consider how these changes affect your tactics and ensure you’re ready to adjust. Dairy has a bright but uncertain future, so taking the initiative will be essential. Continue reading, be involved, and be ready for whatever comes next in this fast-paced field.

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