Dairy slump prompts NZ to cut 2015 primary exports forecast by 3.6%

See also: UPDATED: Fonterra farmers pin hopes on higher dividend following slashed farmgate milk price forecast

Weaker demand for New Zealand's dairy products has prompted the Ministry for Primary Industries to cut its forecast for primary sector exports in the 2015 financial year by 3.6 percent after record earnings the previous year.

The ministry is now forecasting total primary sector export earnings of $34.6 billion in the year ending June 30, 2015, down from a previous forecast of $35.9 billion and from a record $38.2 billion in the 2014 year.

In its mid-year update to the Situation and Outlook for Primary Industries 2014 report released last June, MPI projects dairy product export earnings of $13.8 billion, or $2 billion below its June forecast. Actual earnings in 2014 were $18.1 billion.

MPI said the drop in dairy export earnings largely reflected the impact of Russian trade sanctions and high inventory levels in China. Prices of dairy products dropped to the lowest since 2009 in last week's GlobalDairyTrade auction and today Fonterra Cooperative Group [NZX: FCG] slashed its forecast milk payout to farmers to $4.70 per kilogram of milk solids from a previous forecast of $5.30/kgMS.

"Although these factors will see global dairy trade remain uncertain through to June 2015, we expect global demand and prices to start to stabilise and recover over the next six months," the report said.

The dimmed outlook for dairy offset improved export earnings from meat and wool after lean beef prices reached record highs this year. Export earnings this year are expected to rise to $8.6 billion, up from a previous estimate of $8.2 billion and up from $8.1 billion in 2014.

Market conditions for beef are likely to remain strong for the next two years, said Jarred Mair, director sector policy at MPI. "A combination of strong US demand and drought conditions in Australia means that we have seen record lean beef prices this year."

Mair said increases are also expected for seafood, horticulture, arable, live animals, other agricultural and food products.

Forestry export earnings are projected to be $4.8 billion, an improvement on the $4.69 billion forecast in June but still down from 2014's $5.1 billion. Seafood exports, which MPI says are benefiting from strong demand for rock lobster, mussels and salmon, are forecast to rise to $1.5 billion, up from the earlier forecast of $1.4 billion, which would have been little changed compared to 2014.

Horticultural exports are expected to rise to $3.87 billion, from the earlier forecast of $3.83 billion and up from $3.7 billion in 2014.

(BusinessDesk)