International outlook remains uncertain

Uncertainty about production and demand growth is reflected in the high volatility of dairy prices. Prices vary significantly between the different Fonterra Internet dairy sales, which take place twice a month. The average monthly price at the two sales increased by 23% from December 2014 to March 2015 and then decreased by 20% to a new low of 748 at the first sale in May 2015. Australian production for the first quarter of 2015 is showing some increase owing to more favourable weather conditions.

Beneficial rains in New Zealand during April prompted a number of producers to extend their production period. In Western Europe, the seasonal increase in milk production is below last year’s levels. Milk production growth in April after the end of the quota scheme is lower than the projections of many dairy experts.

According to the latest USDA dairy market overview, consensus is mounting among dairy analysts that dairy commodity prices has reached its low point. However, it will take time for prices to recover. According to MPO economist Dr Koos Coetzee, the lower global prices will have little effect locally as import parity is still safely above local prices and further rand weakness partially protect against the lower global prices.