Trump may yet curdle excellent dairy outlook

By Cristina Alvarado, NZX head of dairy insights.

March is typically a quieter month for the New Zealand dairy industry as the season winds down. Cooler weather sets in, the end of milking approaches, and much of the season’s production has already been contracted. 

However, this past March diverged somewhat from historical trends. While we await official March production data in April, dry conditions in key regions have prompted many farmers to consider drying off earlier. The season has been productive thus far, supported by an optimistic outlook on milk price payouts.

February milk production data showed a -2.0% year-on-year (YoY) decline in milksolids to 171.16 million kg. However, adjusting for the leap year effect, this translates to a 1.5% YoY increase. Season-to-date, milksolids production remains 3.2% higher than the previous year. 

On a tonnage basis, February’s milk production fell -2.6% YoY to 1.865 million tonnes, but when adjusted for the leap year, it rose 0.9%. Season-to-date, total milk tonnage is up 2.4% YoY, and February’s figure sits marginally above the five-year rolling average by 0.3%.

Looking ahead, the NZX milk production predictor anticipates a -1.9% YoY decline for March, followed by further YoY declines of -2.6% in April and -3.1% in May. Despite these expected declines, the full season is still projected to end approximately 2% higher than the previous season on a milksolids basis.

Milk production in other key dairy regions showed a general downward trend in the latest available reports. The United States recorded a -2.5% YoY drop for February, while Australia and the United Kingdom saw declines of -4.8% and -0.8%, respectively. In contrast, Argentina and Uruguay posted YoY increases of 8.3% and 1.6%. Europe’s last reported production figure from December showed a marginal 0.3% YoY gain, with updated data still pending.

March’s Global Dairy Trade events traditionally experience seasonal price softening, but this year saw only a slight drop. Event 375 saw the index decline by just -0.5%, while Event 376 held steady at 0.0%. Butter was the standout performer, continuing to attract strong demand and reaching record prices on the platform, though it remained more competitive than European butter. 

Skim milk powder also showed resilience, rising 0.6% in Event 375, while whole milk powder edged up 0.2% in Event 376. Buyer sentiment was influenced by uncertainty surrounding potential US tariffs under the administration of US President Donald Trump, alongside ongoing supply constraints in key dairy regions. These dynamics contributed to record trading activity on the SGX-NZX Dairy Derivatives market, with a single-day record of 31,000 lots – an extraordinary 174% increase from the previous record of 11,310 lots in August 2023.

New Zealand’s strong dairy export performance continued in February. Export volumes rose 4.6% YoY, while export value surged 23%, driven largely by butter and cheese. Butter exports increased 23.3% in volume and 57.0% in value, while cheese exports jumped 37.9% in volume and 47.9% in value. 

Argentina’s February exports showed a -11.3% YoY decline in volume but a slight 0.3% increase in value. Among the other major exporters, Australia reported a 24.4% YoY increase in January export volumes, with a 30.6% rise in value. Europe’s January exports fell -7.7% in volume but rose 1.5% in value, while the US recorded a 2.8% increase in volume and a 17.2% gain in value.

This season, a combination of favourable factors has aligned to support a milk price of NZ $10/kgMS – a significant milestone for the industry. Strong early-season weather conditions, economic and political factors making New Zealand dairy more competitive on the global stage, China’s renewed stock-building, and production constraints in other key regions due to adverse weather and disease have all played a role. 

However, as the industry looks ahead, it is crucial to prepare for evolving conditions. Other dairy-producing regions continue to push for higher output, and the potential for US tariffs adds a layer of uncertainty. Depending on how these factors develop, New Zealand dairy exports may face greater challenges in the coming season.

As the current season nears its end, farmers should focus on risk mitigation, prudent financial management, and strategic investments to strengthen their operations for the next season. While market conditions have been favourable, preparing for potential volatility will be key to sustaining profitability in the long term.