ANZ agri economist Susan Kilsby has increased the 2023 season outlook by 90c to $9.30.
ANZ has raised its farm gate milk price forecast by 40c to a pace-setting $9.70/kg and that market confidence now extends well into next season.
ANZ agri economist Susan Kilsby has increased the 2023 season outlook by 90c to $9.30, saying that inflationary pressures will hold down farmers’ ability to increase milk supply, keeping dairy prices higher for longer.
Alongside a graph of the spot milk price, now over $12, she said the risk of a sharp downwards correction was now very low and most of this season’s output had already been sold.
“The sharp rise in dairy commodity prices over the past couple of months has set a much more bullish tone for commodity prices in the shorter-term,” Kilsbury said.
“Despite the high milk prices being paid across the globe we are not seeing any major increase in global milk supplies, which means we are unlikely to see dairy commodity prices drop sharply before the end of the milk production season.”
At the same time, the very high spot price at present has come too late in the season for the final milk payout to reach $10, she believes.
Kilsby then looked further ahead.
“We expect dairy commodity prices to remain at high levels at the beginning of the season, but think it is unlikely prices will stay at such lofty levels as the season wears on,” she said,
Global risks are very high and that brings considerable uncertainties.
The costs of producing milk are rising, especially in Europe, where indoor systems mean greater exposure to high prices for fertiliser, grain and fuel.
That has already begun suppressing production in the United States.
“It now seems very unlikely that there will be a meaningful increase in production anywhere in the world over the next six months,” she said.
“This eliminates much of the downside risk for dairy commodity prices in the short-term.
“However, dairy commodity export prices are nearing record levels and when you add expensive freight into the equation, combined with relatively subdued economic conditions, it appears only a matter of time before we start to see some reduction in dairy demand.”
However, Kilsby couldn’t see anything on the horizon likely to derail prices immediately.
“But we are operating in a highly unusual environment where economic risks are certainly high and markets are not always behaving as they have in the past,” she warned.
ANZ expects inflation to reach 7% in the second quarter this year and on-farm inflation even higher, particularly for labour, fuel and fertiliser.
Interest rates are also rising, along with the incentive to repay debt as quickly as possible.
It is unusual to have commodity prices high and the NZ dollar comparatively low.
The dairy companies will have hedged much of next season’s currency exchange requirements already at these favourable levels.
