A surge in prices to New Zealand dairy producers in 2013 led to investments in additional cows and more advanced feed inputs that the government forecasts will lead to an expansion in dairy production to a record high. As New Zealand’s dairy herd expands, its milk solids output is forecast to increase from 1.815 billion kilograms to 1.856 billion kilograms for the year ending May 31, 2015. This expansion will lead to a global milk glut and an annual global dairy output that will exceed demand by 2 billion liters by 2018 according to Goldman Sachs Group. Supply is putting pressure on prices as futures fell 12% from a peak in April as production increases not only in New Zealand but in the EU and the U.S. overwhelm demand growth from China. China’s gross domestic product (GDP) will slow to 7.4% from 7.7% in 2013, and even though China’s increased its dairy purchases, it is believed that buyers bought more than needed in the first half of 2014. Compounding the global glut will be the impending elimination of dairy quotas in the EU which is predicted will increase output by 2.5% to 157 million tons, and an increase of 2.3% in U.S. production to reach an output of 205.9 million tons as dairies are boosting production as a result of low feed costs.
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