Dairy Output Growth to Slow in New Zealand as Drought Spreads

Dairy-production growth in New Zealand may slow or remain flat this year as the world’s largest exporter suffers from the worst drought in at least three decades, pushing prices higher, according to ASB Bank Ltd.

Output of milk solids may be little changed in the year to June 30 after rising 11 percent to 1.68 billion kilograms a year earlier, said Nick Tuffley, chief economist at ASB, owned by Commonwealth Bank of Australia. Tuffley cited initial indications from Fonterra Cooperative Group Ltd., which accounts for about 40 percent of global dairy trade, for the forecast.

The government expanded a drought declaration today to cover all of the North Island after warning that the dry weather may cut economic growth. Whole-milk powder at Fonterra’s bi-weekly auction, which sets a global benchmark, surged this month by the most since 2010, and has rallied 36 percent this year. Dairy exports of NZ$11.4 billion ($9.4 billion) last year made up 25 percent of the country’s total merchandise shipments.

“Because New Zealand is quite a key dairy exporter, and the vast majority of production is exported, if there’s a shift in New Zealand dairy supply, it tends to affect the volume that is traded globally,” Tuffley said from Auckland. “We’ve already seen dairy prices get pushed up and there’ll be quite a bit of that left.”

Powder for May delivery rose 19.3 percent, the most since Sept. 1, 2010, according to a trade-weighted index on Fonterra’s GlobalDairyTrade website last week. The near-term contract for New Zealand product rose to $4,343 a ton, the highest price since March 1, 2011.

Growth in milk volumes will probably slow to 1 percent this year after expanding 6 percent at the start of the season as the drought hurts production, Theo Spierings, chief executive officer of Auckland-based Fonterra, said on Feb. 27.

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