Milk prices soar as war in Ukraine threatens cow feed and fertilizer supplies

Milk prices are rising on expectations that an already strained market will be hit by further fertilizer and feed supply disruptions and inflationary pressures following Russia’s invasion of Ukraine.

Bad weather in New Zealand, the US and Australia, combined with skyrocketing gas prices and pandemic-related supply chain disruptions, had already put pressure on milk producers in the top five exporting countries before the war.

Combined dairy production in New Zealand — known as the “Saudi Arabia of milk” because it controls 35 percent of global exports — the EU, Australia, the US and Argentina fell 1.7 percent in January from a year earlier, according to commodities broker StoneX .

Milk production from the five producers fell year on year, with New Zealand and Australia reporting falls of more than 6 per cent.

After the start of the war on February 24, the prices of important products continued to rise. Anhydrous milk fat, a key dairy product, hit a record $7,111 a tonne on March 15, according to the Global Dairy Trade Index, which monitors New Zealand milk prices. Whole milk powder, the most actively traded product, hit an eight-year high this month.

New Zealand-based Fonterra, the world’s largest milk exporter, said last week it was paying farmers 30 percent more for milk than it was a year ago and predicted the price would continue to rise.

“Conflict in Ukraine has added to an already complex Covid-19 operating environment, impacting global supply chains, oil prices and global grain supplies,” Fonterra CEO Miles Hurrell said as the company reported interim results on Thursday.

Michael Harvey, an analyst at Rabobank, said that although dairy processors and food company bearing the brunt of the costs, consumers should expect price increases.

Harvey added that Russia’s invasion of Ukraine would increase milk production costs since both countries are leading exporters of nitrogen-based fertilizers wheatan important feedstuff for cattle alongside corn and soya.

New Zealand and the EU account for about 70 percent of milk exports, followed by the US, Australia, Brazil and Argentina.

Craig Hough, director of policy and strategy at Australian Dairy Farmers, a trade organization, said rising feed costs are a “big problem” for dairy farmers as they account for 70 to 80 percent of costs.

Hough added that Australian dairy farmers imported most of their fertilizer from China. But the gas supply crisis following the Ukraine war and pandemic restrictions in China as the country faces a crisis growing Covid outbreaksaid fertilizer is “hard to come by and it’s bloody expensive.” Milk prices soar as war in Ukraine threatens cow feed and fertilizer supplies

Adam Bradshaw

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