Milk prices soar as Ukraine war threatens cow feed and fertiliser supplies

Milk costs are hovering on the expectation that an already tight market might be hit by additional disruption to fertiliser and feed provides and inflationary pressures following Russia’s invasion of Ukraine.

Unhealthy climate in New Zealand, the US and Australia had already mixed with rocketing fuel costs and pandemic-related provide chain disruptions to place strain on milk producers within the 5 greatest exporters earlier than the warfare.

Mixed milk manufacturing in New Zealand — often called the “Saudi Arabia of milk” as a result of it controls 35 per cent of worldwide exports — the EU, Australia, the US and Argentina fell 1.7 per cent in January in comparison with the earlier yr, down based on commodity dealer StoneX.

Milk output for the 5 producers fell yr on yr, with New Zealand and Australia posting declines of greater than 6 per cent.

Following the beginning of the warfare on February 24, costs of essential merchandise have risen additional. Anhydrous milk fats, a core dairy product, hit a file $7,111 per tonne on March 15, based on International Dairy Commerce index, which screens New Zealand dairy costs. Complete milk powder, essentially the most actively traded product, hit an eight-year excessive this month.

New Zealand firm Fonterra, the world’s greatest dairy exporter, stated final week it was paying farmers 30 per cent extra for milk than it did a yr in the past and predicted the value would rise additional.

“The battle in Ukraine has added to an already complicated Covid-19 working atmosphere, impacting international provide chains, the oil worth, and international provide of grains,” Fonterra chief government Miles Hurrell stated as the corporate reported interim outcomes on Thursday.

Michael Harvey, an analyst at Rabobank, stated that though dairy processors and meals firms had been bearing the brunt of prices, shoppers had been prone to face worth will increase.

Harvey added that Russia’s invasion of Ukraine would add to exploit manufacturing prices, as each nations are main exporters of nitrogen-based fertilisers and wheat, an vital feed for cattle together with corn and soy.

New Zealand and the EU account for about 70 per cent of milk exports, adopted by the US, Australia, Brazil and Argentina.

Craig Hough, director of coverage and technique at Australian Dairy Farmers, a commerce physique, stated the rising price of feed was a “huge downside” for dairy farmers as a result of it accounts for 70-80 per cent of prices.

Hough added that Australian dairy farmers imported most of their fertiliser from China. However the fuel provide crunch following the Ukraine warfare and pandemic restrictions in China because the nation faces a rising Covid outbreak, meant it was “onerous to get fertiliser, and it’s bloody costly”.