John Kelly: Livestock exports keeping dairy stock demand high

Continued strong exports of live dairy cattle to China and Mexico are adding a premium to livestock prices of as much as 30 per cent. There's no doubt this has led to some distortions in the market, taking out surplus stock and leaving some people scratching their heads over the patterns that emerge.

With more than 50,000 cattle sent overseas nationally last year, the total number to go overseas this year will be around 20,000 to 25,000.

This reflects the limited numbers of surplus stock available in New Zealand and the challenges required in operating in the Chinese market.

Virtually all heifers exported so far have been shipped either pre- or post-mating with values ranging between $700 to $1000.

Because of these exports, I would expect dairy values to hold at or near their peaks for at least the next season, possibly two.

Taranaki Farmers is putting the finishing touches to a shipload of cattle leaving for China this month. And there are two, possibly three, shipments of in-calf heifers bound for Mexico after Christmas.

Significant domestic dairy development is also driving demand - another reason I expect the peak of the price-cycle to extend a little further than it has previously.

People should not forget that there has been significant demand from the South Island and this is also a major factor in driving up values.

Livestock export is a relatively recent area of business for Allied Farmers, which brings its own set of challenges. Australia has essentially stopped live exports to China, frustrated by the vagaries of Government-based orders and rigid requirements. Dealing with China is not easy but patience and integrity are paying off.

Mexico's demand arose from the closing of borders with North America after the appearance of BSE there, combined with the removal of fixed prices for fresh milk.

Allied Farmers, through its preferred exporter, is dealing with individual farmers, but on a grand scale. You'll get farmers looking to double their herds from, say, 10,000 to 20,000 head.

But, despite the narrow client base, exporting is viable in the medium term.

Yes, there's risk. There's risk in any enterprise you undertake for reward. But you are not going to see a great number of farmers rearing specifically for the export market.

If Mexico reopened its borders, that would bring the market back. They know who we are now and they are price sensitive.

China is not the only Asian country looking to develop fresh milk capacity. They all want the best quality at the lowest price - if the quality of the animal is good, there'll be a market for it.

The downside to livestock prices set by external demand rather than the domestic market is that it makes it more difficult for people trying to enter the industry as sharemilkers.

New entrants might be better off looking at buying calves and paying for grazing - it's a bit like compulsory saving to build up their investment capacity before buying dairy cows. And for sharemilkers already under way, the high prices can work in their favour.

Yes, exports are keeping local dairy stock demand high. Yes, prices have some heat on them. But you have to bear in mind that cows are assets. So if prices rise, so does your equity in them and that's something you can take to the bank.

Whether or not the export boom lasts, the phenomenon is growing the international market for dairy products, which has to be good for New Zealand producers.

We are not getting rid of all our best stock. At the same time, these countries are developing a taste for milk and milk products which we can supply. There will always be events - floods, disease - that lead to demand for stock replenishment.

As long as New Zealand remains free of diseases such as BSE, foot-and-mouth and the like, it's always going to be a good place to source quality cattle.

* John Kelly is Allied Farmers livestock divisional manager.