Catherine Lascurettes: Good year for dairy farmers looks set to roll on into 2014
The year has proven to be a good one for the dairy sector, thanks to tight milk supplies and robust demand. Global milk production had been constrained since 2012, first by cost hikes and falling milk prices and then, more recently, by unfavourable weather factors. New Zealand supplies, which had rocketed up 10pc in 2012, fell back dramatically this year, down by 7pc in June alone and by 1.3pc for the entire season.
Despite rising milk prices, falling feed costs and improved weather conditions, milk supplies are only just starting to recover now. The northern European cold spring caused fodder crises for more than just Ireland and the hot summer that followed continued to limit output except in a few regions.
For much of 2013, demand growth outpaced supplies, and this has meant increased international trade at historically strong prices. The EU was able to export large quantities of powders, while strong internal butter and (ice) cream demand reduced recourse to Aids for Private Storage (APS) to only two-thirds of what it was last year.
The Fonterra botulism scare in August caused a major customer confidence crisis, mostly due to poor handling of the episode. The crisis has boosted EU and US dairy sales as buyers in China, Southeast Asia and Russia have shunned New Zealand product since.
Demand has remained robust through the year. Dairy prices first peaked in April and then fell back in anticipation of stronger supplies. However, prices started to shoot up again through the summer as it became clear to international buyers that milk would remain scarce and dairy products would become even dearer.
International and EU dairy markets peaked in April. After some settling, these started to climb yet again in early summer. The knock-on increases for farm-gate prices has made it very attractive for many farmers to milk on this autumn and produce in 2013/14 relative to the previous 12 month period.