Milk prices are rising on the expectation that an already tight market will be hit by further disruption of fertilizer and feed supplies and inflationary pressures following the Russian invasion of Ukraine.
Bad weather in New Zealand, the US and Australia, combined with skyrocketing gas prices and pandemic-related supply chain disruptions, had put pressure on the milk producers of the top five exporters before the war.
Combined milk production in New Zealand – known as the “Saudi Arabia of milk” because it controls 35 percent of global exports – the EU, Australia, the US and Argentina fell 1.7 percent in January compared to the previous year. previous year. commodity broker StoneX.
The milk production of the five producers fell year over year, with New Zealand and Australia posting a drop of more than 6 percent.
After the outbreak of war on February 24, the prices of crucial products rose further. Anhydrous milk fat, a core dairy product, hit a record $7,111 per tonne on March 15, according to the Global Dairy Trade Index, which tracks New Zealand dairy prices. Whole milk powder, the most actively traded product, reached an eight-year high this month.
New Zealand company Fonterra, the world’s largest dairy exporter, said last week it was paying farmers 30 percent more for milk than a year ago and predicted the price would rise further.
“The conflict in Ukraine has contributed to an already complex Covid-19 work environment, impacting global supply chains, the price of oil and the global supply of grains,” said Miles Hurrell, CEO of Fonterra, when the company released its interim results. Thursday reported.
Michael Harvey, an analyst at Rabobank, said that while dairy processors and food companies took the brunt of the costs, consumers would likely see price increases.
Harvey added that the Russian invasion of Ukraine would lead to higher milk production costs, as both countries are leading exporters of nitrogen-based fertilizers and wheat, an important feed for livestock, along with corn and soy.
New Zealand and the EU account for about 70 percent of milk exports, followed by the US, Australia, Brazil and Argentina.
Craig Hough, director of policy and strategy at Australian Dairy Farmers, a trade association, said the rising cost of feed is a “big problem” for dairy farmers, accounting for 70-80 percent of the cost.
Hough added that Australian dairy farmers imported most of their fertilizer from China. But the post-war gas tightness in Ukraine and pandemic restrictions in China as the country faces a growing Covid outbreak meant it was “hard to get fertilizer, and it’s damn expensive”.
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