The slippery slope of the global dairy trade continues with this week’s auction. The best that can be said is that at least the slope is fairly benign with only a -1% drop this time. This has come on the back of the -1.7% drop at the last GDT and the cumulative decline since the last rise back in July is now -8.5%. The individual products results are:

WMP -2% to US$2,884
SMP +1.8% to US$2,663
Butter -1.2% to US$3,334
Cheddar cheese -0.4% to US$3,428

Skim milk powder bucked the trend with a lift. The falls in butter and cheese are driven by the continued slow recovery of the food service sector, which is where a large percentage of these products end up. With the benefit of hindsight, the current ‘slippery slope’ trend goes back to the start of the calendar year when the pandemic began to make its influence felt and the July resurgence now appears to be somewhat of an aberration.

To date none of the banks or Fonterra are yet altering their predicted farmgate prices with a watch-and-wait approach being taken.

Westpac made the point that they were surprised at the degree of the WMP fall which is greater than what the futures market were predicting. The falls are being compounded by the steadily increasing value of the NZ$ which has now reached US$0.677 against the US$ and a rapid rise since the 25th of August when it was at US$0.654. It is worth remembering back on March 23rd just prior to lock-down it was at US$0.561.

The comments that New Zealand dairying proves durable under COVID-19 may be a bit premature at this stage as the current season is just getting underway and we are yet to hit ‘peak milk’. Hopefully, the positive comments are proven correct. However, a pretty comprehensive report written by Chris Nixon (NZIER) and is well worth the read.

The pecking order

There has been a reshuffling of position of the top 20 dairy companies and notable movers are Fonterra dropping from 4th to 6th. Yili has moved into 4th, largely on the back of its purchase of Westland Milk. The other big mover upwards is Dairy Farmers of America, it has gone from 6th last year to 3rd. Nestle and Lactalis still occupy the top two places. Positions are determined only on dairy product sales. The other big Chinese company has moved from 10th to 8th. It was expected to go higher but its acquisition of Australian company Lion Dairy and Drinks, currently owned by Japanese firm Kirin, was declined by an Australian regulator as a result of the increasing tension between China and Australia.

Lost at sea

The news today (Thursday) of the sinking of the 11,947-ton Gulf Livestock 1 ship came as a shock. It was west of Amami Oshima, a Japanese island, in the East China Sea when it sent a distress call early Wednesday and has not been heard from since.

The Japanese Coast Guard since rescued one crew man from the ship who confirmed its capsizing in heavy seas created by Typhoon Maysaak when at least one engine appears to have failed. There are still 4 crew, including two New Zealanders, missing and the nearly 6,000 cows destined for China have been lost. MPI have since put a temporary ban on live shipments.

Until the details emerge of what happened in the disaster it is difficult to comment however, it will put more pressure on MPI to make the ban permanent. Up until today only shipments of animals to be used for breeding have been permitted from New Zealand and shipments have had to meet stringent animal welfare conditions.

It is perhaps an irony that only as recently as August 20th there were protests held at Port Taranaki over another ship, the livestock carrier Yangtze Harmony had been in port that week collecting 5700 cows. There has been another shipment recently from Napier also with the livestock carrier Dareen collecting another 7300 cows.

At the time Minister Damien O’Connor said New Zealand did not export animals for slaughter and the animals the country did export were used for breeding purposes to help develop the dairy and livestock industries in other countries. “They are high value animals. The importers have made a significant commercial investment in these cows, so it is in their interests to ensure they are well cared for and maintained in excellent condition.” He said before animals were exported from New Zealand, they met conditions set by world-class veterinarians. Last year at least approximately 25,000 cattle were exported live from New Zealand up 10,000 on the previous year. All cattle were bound to China.