Fonterra assesses impact of big drop in milk production on future sales

In September, Fonterra said New Zealand milk collection dropped 2 per cent while in Australia it was down 9 per cent. Photo / Mark Mitchell

Fonterra Cooperative Group is assessing the impact of a big drop in milk production this month on its contract book and future production plans.

In its latest global dairy update, the world's biggest dairy exporter said daily milk volumes across the central and upper North Island were down significantly in the early part of October due to the impact of wetter than normal spring weather and this has continued, particularly in the key dairying region of Waikato where daily milk volumes are down around 14 per cent compared to last year.

Given that milk collections are now at the peak of the season, they are not expected to recover and will flow into the balance of the season, it said.

In September, Fonterra said New Zealand milk collection dropped 2 per cent while in Australia it was down 9 per cent. Season to date figures indicate a 2.9 per cent drop in milk production compared to last year, with a 4.9 per cent decline in the North Island, and a 13 per cent drop in Australia.

As a result, the cooperative's forecast offer volumes on the GlobalDairyTrade auction over the next year has been decreased by 11,199 tonnes. That means Fonterra has dropped GDT offer volumes by 55,481 tonnes since August.

Fonterra's forecast milk volume for the 2016/2017 season has been reduced further to 1.46 billion kilograms per milk solids from 1.52b kgMS.

Milk production from most other major exporting regions is also continuing to soften. European milk production dropped by 1 per cent in August, the third consecutive month it has declined. The change for the August year is 3 per cent.

But in the US production increased 2 per cent in September compared with the same month the previous year with farmers responding to favourable weather and grain prices. Milk production for the September year is up 1 per cent on the prior year. The US Department of Agriculture's forecast milk production for 2016 is up 1.7 per cent on last year as cow numbers have steadied as a result of likely better returns.

On the export side, total New Zealand dairy exports in August dropped 5 per cent on the prior year, although they're up 6 per cent in the August year due to increases in fluid and fresh dairy, up 41 per cent, and AMF and cheese offsetting falls in whole milk powder.

Australia's dairy exports rose 17 per cent in July compared to the same month last year and 6 per cent for the July year. The increase was largely due to infant formula rising 236 per cent and fluid and fresh dairy up 20 per cent.

China led the charge on imports which were up 25 per cent for the month of August and for the August year following a rise in imports of fluid and fresh dairy, infant formula, and whey powder.

Dairy imports to the Middle East and Africa dropped 13 per cent in June compared to the same month last year with a decline in all major import categories and are down 7 per cent for the 12 months to June.