New Zealand dairy exports to surge due to renewed Chinese demand
New Zealand dairy products are predicted to surge 32% in 2017, following a dip this year, as gains in wool, meat, forestry, seafood and horticultural products are expected to drive a 5.3% increase in the value of primary sectors, says the Ministry for Primary Industries. This is due to an expected renewed demand for exports from China in early 2016, primarily in whole and skim milk powder.

CORRECT: NZ dairy exports to surge by 2017 after weaker 2016 15 Dec 2015

Article - BusinessDesk

CORRECT: NZ dairy exports to surge by 2017 after weaker 2016, meat, wool stronger

(Fixes billions in second paragraph)

By Jonathan Underhill

Dec. 15 (BusinessDesk) - New Zealand dairy exports are forecast to surge in 2017, after falling in the current year when gains in meat, wool, forestry, seafood and horticultural products are expected to drive a 5.3 percent increase in the value of primary sector exports, the Ministry for Primary Industries says.

The ministry's latest Situation and Outlook for Primary Industries report forecasts total exports for the sector of $37.6 billion in the current year, up from $35.7 billion last year. Dairy products are the only segment seen falling, down 3.7 percent to $14 billion. Meat and wool exports are forecast to rise 10 percent to $9.91 billion.

The outlook for the 2017 year is even more bullish, led by a 32 percent surge in dairy products to $17.9 billion, driving overall primary product export growth up 16 percent to $43.7 billion as demand recovers, especially in China, and exporters benefit from a lower exchange rate. The ministry's latest forecasts have the kiwi dollar tracking near 60 US cents by early 2017, compared to a level closer to 73 cents assumed in its last report in June.

"We expect dairy revenue to recover in 2016/17 as whole and skim milk powder prices rise due to renewed Chinese demand for exports, New Zealand production increases, and exchange rates remain favourable for our exporters," the ministry says. In the current year, there is "some downside risk for potential drought conditions brought on by El Nino, which is factored into our forecasts."

It says El Nino is likely to have a negative impact on regions that account for about 35 percent of New Zealand's dairy production, but for the remainder the impact may be neutral or positive. Improvements in farming practices and increased irrigation may mitigate the impact on lamb production compared with the 1997/98 El Nino weather pattern. High prices for beef means cattle herds have already been subject to significant culling, putting them in better shape for a dry summer.

For dairy, the ministry forecasts whole milk powder prices will bottom out at $3.50 per kilogram of milk solids in the December quarter and will revive to $5.60/kgMS by the fourth quarter of 2016, "with Chinese demand supporting growth."

"We expect China's import demand to pick up in early 2016, once China works through its current dairy product inventories," the ministry says, noting that 80-90 percent of China's whole milk powder imports come from New Zealand.

Overall milk production is forecast to be down 7 percent in the year ending June 30, 2016, partly reflecting favourable growing conditions in the previous year, the report said. Low milk prices and relatively strong beef prices resulted in an 85,000, or 90 percent jump in cow slaughter numbers, in the third quarter of this year, which would reduce the impact of any El Nino-driven drought, it said.

The report noted the increase in European Union milk production quotas from April 1, which resulted in a 2.9 percent increase in production between April and July, from a year earlier, with the biggest increase coming from Ireland, the Netherlands and Germany. At current prices, many EU farmers said they were operating below break-even and further production growth is expected to be more moderate.

Total global output in 2016 is expected to fall, led by reduced production from New Zealand and Latin America, while the US is expected to have less exportable surplus as production growth slows and domestic consumption grows.

In its meat and wool analysis, the ministry is forecasting the biggest gains in export value to come from beef and veal - climbing 15 percent to $3.4 billion in 2016 and rising to $3.6 billion in the June 2017 year. While wool exports are forecast to rise 14 percent to $920 million next year and to rise to $981 million in 2017, the value of carpets and other woollen products is expected to decline, reaching $158 million in 2017 from $173 million in the 2015 year.

Lamb exports are seen rising a more modest 1.8 percent in 2016 to $1.5 billion and to about $2.8 billion the following year.

Forestry exports are expected to rise 13 percent in 2016 to $5.3 billion and by 9 percent to $5.77 billion the following year. While Chinese demand for logs is expected to remain low, that will be more than offset by increased prices for pulp, paper and timber exports, it said.

Seafood exports are seen rising 12 percent to 41.7 billion in 2016 and 6.6 percent to $1.9 billion in 2017, helped by a weaker New Zealand dollar. Horticultural exports are forecast to gain about 16 percent to $4.8 billion in 2016 and by 7 percent to $5.2 billion the following year, driven by increased shipments of apples and pears and a gain in exports of gold kiwifruit. the value of wine exports is seen rising to $1.6 billion by 2017 from $1.4 billion in 2015.

Arable exports, such as vegetable and ryegrass seed, are forecast to rise 20 percent to $213 million in 2016 and by 6.6 percent to $227 million in 2017.

Other exports, which includes honey and live dairy cows are seen edging up 0.4 percent to $2.1 billion in 2016 and by 8.8 percent to $2.28 billion in 2017.

(BusinessDesk)

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