Dairy Prices Tipped to Stay High

Rabobank’s latest dairy report has noted that dairy prices are expected to remain elevated in the near term. The longer-term outlook is less certain, however, as the Russia-Ukraine conflict creates uncertainty in markets.

Weather-related issues, high or rising production costs and lingering disruptions from Covid-19 resulted in milk production growth faring worse than previously expected in the final quarter of last year.

Those challenges had affected dairy farmers from all the key production regions and among the top seven dairy exporters — New Zealand, Australia, the EU, the US, Uruguay, Brazil and Argentina — production was now expected to fall 0.7% year on year in the first half of 2022, Rabobank senior agricultural analyst Emma Higgins said.

That had further increased the global milk supply deficit and led to soaring dairy commodity prices and significantly higher farm-gate milk prices across the major export regions. Potential further upside in milk price remained, the recent strength in global commodity prices yet to affect farm-gate milk prices in some regions, Ms Higgins said.

The report said rising milk prices were failing to induce greater production and the supply deficit was unlikely to go away in the near term. Rabobank has increased its forecast New Zealand farm-gate milk price for the 2021-22 dairy season to $9.70 a kg of milk solids.

Higgins said that looking towards the 2022-23 season, the pricing outlook was much less certain, and hinged on consumer behaviour and normalised market conditions, both of which were very unpredictable within a setting of the escalating Russia-Ukraine conflict.

"We expect global dairy commodities to stay elevated through to the middle of the year amid the constrained global supply. But with inflationary pressure running rampant around the world, and expectations for global economic growth beginning to slow, this begs the question: how high will dairy prices go and for how long will they stay there?”

ANZ has revised its farm-gate milk price forecast for the 2021-22 season up another 40c to $9.70/kgMS and upped its 2022-23 season forecast from $8.40/kgMS to $9.30/kgMS. The bank said the risk of a sharp downwards correction in dairy commodity prices in the near term was very low as much of this season’s product had already been sold.

For next season, it expected dairy commodity prices to remain at high levels at the beginning of the season but believed it was unlikely prices would stay at such lofty levels as the season wore on.