According to AHDB Fairy, news of a potentially strong El Niño weather event has raised hopes that it may reduce global supply and help rebalance the dairy markets.
For New Zealand (NZ), the largest dairy exporter, the typical result of an El Niño is dry weather, impacting on grazing and reducing milk production. El Niño is expected to be at its strongest shortly after NZ reaches its peak production period, when grass growth will be slowing seasonally.
NZ milk production is already expected to fall away sharply in this period as farmers look for options to reduce costs. According to market commentators, cull rates are expected to rise from November onwards and it has been suggested that some farmers may dry cows off earlier or move to once a day milking in order to reduce feed costs during the summer and autumn months.
If the El Niño does occur at the strength and time predicted, it may be the main reason NZ milk volumes drop, although it could accelerate the expected downturn.
Meanwhile, Australian dairy farmers have threatened action if its Parliament fails to ratify a free trade agreement with China.
As part of the agreement, all tariffs on dairy would be abolished which some commentators say could result in Australian dairy exports to China tripling in the next decade.
However, tensions have been mounting as trade unions are seeking to protect domestic jobs, while the Labour party has announced it intends to block the deal as it stands. According to Comtrade, during 2014 China imported US$321 million worth of dairy products from Australia.