ANZ Research has increased its farm gate milk price forecast by 60c to $8.80/kg milksolids and begun forecasting for next season at $8.
Agricultural economist Susan Kilsby says at this time in the current season milk price certainty improved because more than half the seasonal output had been sold and foreign exchange transactions had been hedged.
Using market prices and exchange rates in a matrix, she says dairy commodity prices would need to drop about 20% to pull the payout back under $8.
“(Indeed), we have allowed for some softening of prices in our current forecast ($8.80),” Kilsby said.
Next season was also expected to deliver an above-average milk price and while $8 might not be as strong as this season, it was a very high level.
Modest rates of growth in milk supply in the major exporting countries were keeping prices high and, in some countries, where stronger growth is expected, like India, Russia, Pakistan and China, domestic markets will take the increases.
But the United States situation was one to keep watch on, where very high grain prices were keeping milk growth in check.
“Grain costs could change next season and it is possible we may see a surge in milk supply, which would put downward pressure on prices,” she said.
Demand for dairy has remained robust through the pandemic and China has been a strong presence, but economic activity is starting to wind back in that region.
“Should Chinese consumer confidence be dented then we could see a reduction in demand for dairy produce, which would quickly flow through to lower prices,” she said.
“At this point we don’t expect that to occur, but we have factored in some easing of commodity prices into our 2022-23 forecast of $8.”
Other milk price forecasters range from $8.90-$8.75 for the 2022 season, at the top end of Fonterra’s forecast range of $7.90-$8.90.
