Key industry reports released this past week provided additional fuel to bulls in dairy, bolstering prices. Domestically, the milk production report surprised many with a significant reduction to last month’s August estimate of herd and a further decrease for the current month. In total, the herd has now fallen by 70,000 head since July and turned net negative on the year. Although we remain in net positive territory, comparing September of this year (9,422,000 heifers) with September 2020 (9,376,000 head), we will definitely move into negative territory YOY should culling continue.
Similarly, total milk output across all fifty states is now up just a fraction of a percent (0.25 percent) YOY, and total production now looks to be flat for the year.
Global pricing was equally energetic during the week, with the biweekly Fonterra auction seeing prices climb a further 2.2 percent, up about 20 percent from the start of this year. All product categories rose with the larger commodities all registering solid gains: anhydrous milkfat up 2.5 percent, whole milk powder up 1.5 percent, and skim milk powder up 2.5 percent. The results were impressive given that Oceania is entering its springtime flush and peak milk output.
Chinese demand remains the big riddle, with some labeling buying over the past six months as stocks-rebuilding rather than genuine demand given concerns of delta-variant outbreaks. In light of the culling and dairy contraction seen here in the U.S., a relatively strong dollar, and supply chain challenges, clearly New Zealand will enjoy a more captive Asian dairy market heading into 2022. Buyers in the U.S. can hope that lower export demand may dial back the inflationary pressure and keep prices in check domestically. With the bulls running in the market, it definitely is a good time for buyers who are covered to stay firmly on the sidelines.
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