May 11, 2016

Things Could Be Worse In New Zealand

Top Story  |   |  By: Wyatt Bechtel

For a grazing dairy industry such as New Zealand’s, this season’s threat of an El Niño-inspired drought had many Kiwis fearing a big dent in the major milk exporter’s production. But that never came to pass, and even though New Zealand producers are weathering some of the lowest milk prices in recent history, production has been better than expected. Third-generation dairy farmer Andrew Hoggard milks 530 cows on 790 acres about two hours north of the country’s capital city, Wellington, on New Zealand’s north island. As is common there, Hoggard started out as a share-milker (owning the herd and equipment but not the land). He transitioned to his family’s operation one year later, in 1998. But even after nearly two decades in the business, Hoggard says he can barely keep up with expenses these days.

Milk prices in New Zealand at press time were NZD$3.90 per kg of milk solids, or the equivalent of $8.42 per cwt in the U.S. “Most farmers will take a small loss this year, and there will be a few that make a small profit,” Hoggard says. He thinks he’ll straddle the break-even line. New Zealand dairy farmers export about 95% of their production and account for about 35% of global dairy trade.

Despite months of speculation that some of the lowest prices in New Zealand’s recent history would force producers there to cut back on supplemental feeding and aggressively cull their herds, the culling pace has dramatically fallen since the start of the 2015/16 production season. “From the outset of this season, dairy producers in New Zealand have faced hardship in the form of low milk prices and mounting debt, and they were told to expect adverse weather,” says Sarina Sharp, agricultural economist with the Daily Dairy Report . “Despite this season’s strong El Niño, though, the weather in New Zealand was benign. Welcome rains arrived a few months ago, and summer pasture conditions are generally favorable.”

Hoggard culled 30 cows at the start of the season and, despite El Niño conditions, says his pastures received enough moisture to stay productive. In the first four months of New Zealand’s 2015/16 milk production season, cow and heifer slaughter was strong, up 33% from the comparable period a year earlier, according to the Daily Dairy Report . Cow and heifer slaughter volumes for the October 2015 through January 2016 period dropped 9% below the prior year, putting season-to-date (June through January) slaughter 10.3% ahead of the same period in 2014/15.

There are no safety nets for New Zealand farmers in the form of subsidies or margin protection, Hoggard says. They will gain access to their first dairy futures market in May. “You’ve just got to be real focused on your business, on cost of production,” Hoggard says. “We’ve had quite a few good years in the dairy business, so some of us might have gotten a bit slack.”