Near-Normal Rain Seen Easing Worst N.Z. Drought in 30 Yrs

New Zealand, the world’s largest dairy exporter, may receive near-normal rainfall through June, potentially easing the most widespread drought in at least 30 years that’s driven milk-powder prices to a record.

“We’re getting to a wetter time of year on the North Island,” Brett Mullan, principal scientist at the National Institute of Water and Atmospheric Research, said by phone from Wellington today. “Things are looking a bit more positive,”

A drought across the entire North Island may cost NZ$2 billion ($1.7 billion) as the conditions threaten economic growth, the government estimates, while boosting opportunities for dairy exporters in the U.S. Fonterra Cooperative Group Ltd. (FCG), the Auckland-based company that’s the world’s biggest dairy shipper, said last month that growth in milk volumes may be unchanged this year as the drought curbs production growth.

“You often get lows forming in the Tasman, and at least one in April which gives us a good dump on the North Island,” said Mullan, referring to low-pressure systems that can form over the Tasman Sea, which separates the country from Australia. “You really need better-than-normal rainfall to get back to normal soil moisture.”

Whole-milk powder surged 92 percent this year to a record $5,998 a metric ton on April 2, according to Fonterra. Class-III milk futures have surged 7.3 percent on the Chicago Mercantile Exchange this month on expectations that buyers will seek to import more from the U.S. as output in New Zealand slows.

‘Better News’

Pasture-growth rates, which are below the historical norm for this time of season, may continue to improve over the next two weeks, NZX Agrifax, an agricultural data provider, said in a note today. New Zealand’s North Island accounts for about 61 percent of milk production, Rabobank International estimates.

“It’s better news for farmers than what they’ve been going through recently,” said John Droppert, industry analyst at Melbourne-based Dairy Australia. “Normal rainfall will help but won’t completely alleviate the situation.”

Minister for Primary Industries Nathan Guy said on March 31 that “plenty more rain” was needed to help grass growth before colder weather set in. Scattered rains, which had been forecast when Guy spoke that day, wouldn’t be enough to break the drought, according to a statement.

“With a bit more rain as we go into winter, and we’re expecting above-normal temperatures, that will help keep the grass growing later into the season,” Mullan said today. Northern and central areas of New Zealand receive more rain over winter than summer, according to the Auckland-based institute. New Zealand’s winter runs from June to August.

Class-III futures for May delivery traded at $18.52 per 100 pounds in Chicago at 5:05 p.m. in Singapore after gaining 1 percent. The most-active intraday price touched $18.75 on April 3, the highest level since December.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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