David Fickling, Columnist

Dead Cows Revive Milk

Milk prices have slumped on oversupply and lackluster demand. That's about to change.

March 23, 2016 at 2:04 AM UTC

David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.

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Farmers have a potential advantage over producers of other commodities. Agricultural products are tied to the seasons and require heavy investment each year in terms of fertilizer, water, seed and feed. As a result, supply gluts have the potential to dissipate more quickly than elsewhere, and deficits can be longer lasting. Breeding a new herd of beef takes a lot more time than powering up a colliery.

That's good news for dairy farmers, if not for their cows. The industry has had a ``tough season,'' New Zealand's Fonterra, the world's largest dairy exporter, said in reporting first-half results Wednesday. Prices at its milk powder auctions touched a record low in August and the company expects to pay just NZ$3.90 ($2.64) a kilogram to farmers for their milk in the current season. New Zealand's farmers need about NZ$5.30 to break even and 80 percent of the industry is operating at a loss, the Reserve Bank of New Zealand said last week after conducting stress-tests of the nation's banks to measure their resilience to the dairy slump.