Widespread drought in the North Island over summer and autumn has left local supplementary feed availability short or non-existent. It has also exposed the challenges of inter-island transportation of supplementary feed.
While dry conditions are nothing new, the official total drought declaration for the North Island meant that, unlike in previous adverse events, greater demand for supplementary feed has been hard to fill from within the island.
South Island feed-growers responded well, as evidenced by the thousands of bales of barley and ryegrass straw sent north by ship and by truck, much of which Federated Farmers facilitated through its arrangements with shipping companies Pacifica and Hamburg Sud.
The experience has highlighted the fact there could be a role for South Island producers in feeding animals in the North Island. With feed, wheat and barley trading around $370 to $390 on a delivered port or rail-head in Canterbury, it represents a cost-effective option for northern livestock farmers.
The latest pro-farmer Grain & Feed bulletin notes that rapidly rising prices in Australia, on the back of strong exports and lower than expected production, has meant Australian grain no longer necessarily has the edge on South Island exports.
South Island wheat and barley are still in good supply, notes a recent report from the Arable Industry Marketing Initiative (AIMI), which indicates that while 2013 yields were lower than the previous year's record per hectare, a carry-over from 2012 has led to moderate stocks on hand.
Federated Farmers' Grain & Seed chairman, Ian Mackenzie, says although the per hectare yield was strong in some areas for wheat and autumn barley, there has been a decrease in total area in cereals through land-use change and the availability of other crops. This will mean the surplus of grain could be absorbed quickly due to increased demand and favourability against substitutes.
One such substitute, palm-kernel meal, has emerged over the past decade as the go-to option for the dairy industry during droughts, and the feed has now become a staple of North Island dairy farming to fill the feed deficit.
However, this year has focused attention on the risk of relying on a product that is produced a great distance from its market and for which production responds to supply and demand forces unrelated to agricultural demand.
Increased demand from farmers has been met with skyrocketing prices and for much of the time the withdrawal of spot sales. This rapid increase in demand from the world's largest palm-kernel meal importer, New Zealand, would be expected to put pressure on supply and, therefore, upward pressure on prices. What has transpired, coincidentally, is a sustained period of low demand for palm oil and, therefore, a slowing in production, putting further restrictions on supply.
The fact that palm-kernel meal is a by-product of the palm oil industry is well-advertised and the shortcoming of that is that the world edible oil market is really the sole, or at least primary, driver of palm-kernel crushing and meal production.
In December 2012, Malaysia experienced record stockpiles of crude palm oil because of low demand.
While much of this has been run down, the exporting of stock on-hand still does not require further oil extraction and therefore production of palm-kernel meal.
Nick Hanson is Federated Farmers Grain & Seed policy adviser.