New Zealand Milk Output Seen Increasing After Herd Expansion

Milk production in New Zealand is set to increase for a second year after farmers in the world’s biggest dairy exporter expanded herds, the government said.

Output will advance 2.3 percent to 1.856 billion kilograms of milk solids in the year ending May 31, 2015, the Ministry for Primary Industries said in a report. The dairy herd expanded to 5.01 million cows on July 1, 2013 from 4.82 million a year earlier, and will hold at 5 million this year, it said.

Earnings from milk have dropped for New Zealand farmers amid increasing global supply, helping curb world food costs. Prices will extend declines over the next year as exporters in the U.S. and Europe boost output and slower economic growth limits demand in China, the largest buyer of whole milk powder, Rabobank International said April 28. Fonterra Cooperative Group Ltd. (FCG), the biggest dairy exporter, forecasts that supply in New Zealand will increase 2 percent in 2014-2015.

Rising output is “a result of a continued long-term trend in increasing cow numbers and more moderate growth in milk yield per cow,” the government report said. “Dairy prices have been falling over the last few months and are expected to remain subdued” after New Zealand, the U.S., the European Union and Australia boosted production, it said.

Prices Drop

Whole milk powder prices have tumbled 28 percent since reaching this year’s high of $5,005 a ton on Feb. 4, according to Fonterra’s twice-monthly GlobalDairyTrade auction. The average winning price was $3,594 a ton on June 3 from a record $5,245 on April 16, 2013, auction data show.

Fonterra will pay its farmer shareholders NZ$7 ($5.94) per kilogram of milk solids for the 2014-2015 season from NZ$8.40 a year earlier, it said May 28. The Auckland-based company forecasts supply at 1.616 billion kilograms of milk solids in 2014-2015 from 1.584 billion a year earlier, it said.

World food prices declined 1.2 percent in May, according to the United Nations’ Food & Agriculture Organization. An index of dairy costs slid 5 percent after tumbling 6.3 percent in April, according to the Rome-based agency.

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

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Ovais Subhani, Thomas Kutty Abraham

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