New Zealand dairy commodities surged during Q4 2021. The average price of New Zealand butter increased by 18% q-o-q (Oct-Dec ’21) to NZD 8,466/MT, likewise the average price of New Zealand cheddar skyrocketed to NZD 7,184/MT between October and December 2021 quarter, up 21% from the previous quarter.
The main driver for the surge in dairy prices was the lower-than-anticipated output from the New Zealand milk peak season, which started on 1st June, down by 2.9% y-o-y during the June-November 2021 period. Cold and wet weather, combined with low light levels, hindered pasture performance and milk production. While weather conditions have been reasonable in December 2021, some market participants expect milk production in 2022 to lag 2021. Since it is unlikely that domestic milk producers will be able to offset the supply shortfall during H1 2022, as production typically slows from December to May. As a result, the New Zealand milk production forecast for 2022 is at 22.25 million tonnes, down by 0.5% y-o-y, according to the USDA.
Another significant driver for New Zealand dairy prices was the critically low supply of farm labour. The dairy sector has had fewer workers coming into the country because of COVID-19 measures, and workers have left the country to seek employment and residency opportunities elsewhere. New Zealand Dairy sector officials estimate that the industry requires from 2,000 to 4,000 workers. Consequently, any increase in wages to compensate workers will support dairy product prices.
A combination of a decline in New Zealand milk supply, critical labour shortage, high energy and feed prices will drive prices in the dairy market. Mintec anticipates that New Zealand cheese and butter prices should maintain high during Q1 2022.