Canterbury flooding: Winter feed concerns

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Severe flooding in Canterbury poses a risk for the new dairy season's production outlook.

In Westpac's latest dairy update, senior agri-economist Nathan Penny said many farmers had lost winter feed during the floods and feed stores were already low given earlier dry conditions.

While that might not necessarily impact production levels from spring, any additional adverse weather events certainly would, Penny said.

The new season officially began on Tuesday and final production data for the 2020-21 season was still to be released, but recent data suggested the season had ended on a strong note.

April production set a record high for April months; production was up 11.6 per cent compared with April last year and was up 2.4 per cent for the season to date.

On that basis, Penny expected production to end about 2.5 per cent higher than 2019-20 and set a record high.

That result was even more impressive given the previous season was also a record high level and 2020 included an extra day as it was a leap year.

At this stage, the bank expected a 2 per cent lift in national production next season as the very strong milk price was likely to drive production higher "even with compliance and regulatory constraints acting in the opposite direction", he said.

Prices eased at the first Global Dairy Trade auction for the new season, with a 0.9 per cent drop from the previous event.

Whole milk powder (WMP) — which has the biggest influence on Fonterra's farm-gate milk price — was also down 0.5 per cent to an average $US4062/MT ($NZ5602/MT), while skim milk powder — Fonterra's second-biggest reference product — dropped 0.5 per cent to an average $US3415/MT.

Penny said prices remained at very healthy levels; WMP prices were about 48 per cent higher than a year ago and were more than a third above their five-year average.

ASB economist Nathaniel Keall said while it was the fifth consecutive auction where prices had eased, the real story was the continued strength in WMP prices.

There was little sign of a slowdown in Chinese inventory just yet and, while production in the northern hemisphere had started to strengthen, the bank continued to expect global dairy demand would outstrip supply over the next 12 months.

"The upshot is we see little prospect for a sharp correction in prices and maintain our lofty $8.20kg/ms forecast for 2021-22," Keall said.

Fonterra started the 2021-22 season with a rise in the forecast farm-gate milk price range from $7.30-$7.90 per kg to $7.25-$8.75 per kg.

The midpoint of the range, off which farmers are paid, also rose from $7.60 per kg to $8 per kg.