Milk slump tipped to raise prices

The weather-affected dairying season, resulting in the first milk production drop in six years, will have a ripple effect on the sector worldwide, a US agricultural service says.

The Foreign Agricultural Service tipped that New Zealand butter exports could plunge 18 per cent to 320,000 tonnes in the year to May 31, cheese shipments to drop 8 per cent to 270,000 tonnes and overseas sales of whole milk powder to slip 11 per cent to 615,000 tonnes.

A drop in dairy exports from New Zealand, which accounts for almost a quarter of world trade in cheese, will further tighten supplies just as lower output in the European Union and Australia causes international prices to climb.

Spot prices for cheese have jumped about 13 per cent to a record in the past year and butter has risen 22 per cent.

"This will be another supply pressure that's been pushing prices up," said Michael Harvey, a market analyst with Dairy Australia, a Melbourne trade and research group.

Declining dairy export volumes are bad news for the economy as dairy contributes about 16 per cent of exports, which make up 30 per cent of gross domestic product.

The service expects milk production to fall to 14.6 million tonnes, compared with an initial forecast of 15.4 million tonnes and output a year earlier of 15 million tonnes.

- BLOOMBERG