A Rabobank report notes the dairy market is slowly returning to normal but warns there could still be plenty of bumps in the road
Rabobank’s latest Global Dairy Quarterly report says dairy prices are up but “stuck in neutral” as the market slowly recovers from the effects of the pandemic.
Dairy demand in the US and China is reaching pre-pandemic levels through retail and foodservice channels, but risk and uncertainty still “abound”.
Farmers are getting a marginally higher price at the gate but the report notes that “global commodity markets are delicately poised”. And while further upside cannot be ruled out, the peak is near.
Chinese import demand is expected to weaken in the second half of this year and as China has been the key support under current prices, this will mean a price drop.
Dairy supply growth has also been going nowhere and Rabobank expects only a 1% increase over the next 12 months for the Big-7 export regions.
However, it’s not all bad news with strong price signals set to extract “peak milk flows” from New Zealand herds.
The report acknowledges the global pandemic is far from over but says macroeconomic settings are improving with the caveat that the recovery could “lose some steam” as pent-up demand dies out and government fiscal support is wound back.
The Australian farmgate sector is poised for another season of “sustained profitability”, according to Rabobank senior dairy analyst Michael Harvey, as near-record milk prices are expected in the coming season.
“Conditions are in place for Australia’s dairy farmers to again register healthy profit margins in 2021/22,” Harvey said.
Revising up the bank’s milk price forecast, Mr Harvey said Rabobank is forecasting a full-year milk price of AUD 6.90/kgMS in the southern export sector in 2021/22.
“We have revised our forecast up from AUD 6.50kg/MS, as market conditions support the recent milk price announcements based on our models,” he said, “with a number of dairy companies announcing second and third step-ups prior to the season getting underway on July 1.”
“That said, our modelling suggests there is limited price upside as the season progresses unless the global market and the Australian dollar outperform our expectations.”
Mr Harvey says the “healthy profit margins” come despite the increase in purchased feed prices and home-grown feed inputs.
“While higher feed prices are expected to linger well into 2022, these will be mitigated somewhat by the ample availability of home-grown feed in the months ahead,” he said.
In terms of milk supply growth, which has expanded by 0.7 per cent in the season to date (as to March), Australian milk production is forecast to expand by 1.3% in the 2021/22 season to 8.8 billion litres.
“Yield improvement is key to this growth,” Mr Harvey said, “as milk production remains constrained by low national herd numbers and the hesitation to rebuild herds and expand operations despite attractive prices.”