NZ whole milk powder supply will be down, says analyst

Fonterra has sent a clear message to the market in its revised forecast for the season: there's not going to be much of the New Zealand whole milk powder the world is so reliant upon, an agricultural analyst says.

The dairy co-operative revised its forecast for its New Zealand milk collection for the current season to 1480 million kilograms of milk solids, down 3 per cent from the 1525m kgMS it collected in the 2016/17 season, it said.

In December it had forecast milk collection would be in line with the previous season.

Fonterra, the world's largest milk processor, said wet conditions experienced by farmers at the beginning of spring improved from late October and into November, but the recent dry weather is continuing to impact soil moisture and pasture quality across the country.

Dry conditions are expected to continue, and even if the rain forecast for early in 2018 eventuates, it will not be enough to bring production back to previously anticipated levels, it said.

AgriHQ analyst Susan Kilsby said the revised forecast sent the market a clear message.

"That is there isn't going to be heaps of product available, particularly whole milk powder which the world's so reliant on for supply from New Zealand," she said.

"We are working across a background of a lot of milk being produced in other parts of the world but they don't produce so much whole milk powder; they're producing more butter, cheese or skim milk powder so there isn't the potential for the price of those commodities to lift as much.

"But for whole milk powder, because New Zealand supplies more than half what's traded around the world, it has a big impact what's happening here in New Zealand."

At the latest Global Dairy Trade auction, some 25,400 tonnes of whole milk powder was sold, down from 29,592 tonnes two weeks ago. The product rallied 4.2 per cent to US$2886 (NZD$2045) a tonne.

Despite the fall in supply, Kilsby said it had not been the worst of seasons, with "a little bit of upside" present in the higher price for whole milk powder.

"The challenge for the farmers at the moment is a lot of them are carrying a lot of debt from the couple of seasons they had where they were making losses so while dairy should turn a profit this year anything is just going to go into servicing that debt. So you're not going to see a whole lot of additional flow-on into the rural economy."

- With BusinessDesk