Wednesday, July 6, 2022

Dairy prices picked to come off highs

The prices of dairy commodities are forecast to modestly decline during the second half of 2022, despite no appreciable increase in milk production from the world’s largest producers.

Rabobank senior dairy analyst Emma Higgins is expecting that weakening global demand will bring down commodity prices despite milk production falling for the fourth consecutive quarter in Q2 2022.

“The current slowdown in global milk output is directly related to higher costs of production and weather events,” she said.

“In the past, production has recovered and surpassed previous peaks, but now there are structural issues that could limit a significant rebound in production from some key exporters.

“Dairy herds in New Zealand and Europe have limited scope for growth and are more likely to contract under current and proposed regulations and environmental pressures.

“In South America, competition from grains and oilseeds for land and capital continues to intensify, limiting dairy expansions.

“Milk producers around the globe are facing higher corn and soybean prices, and weather disruptions are affecting certain regions, especially Oceania and South America.

“NZ dairy herd has limited scope for growth and is more likely to contract under current and proposed regulations and environmental pressures.”

Emma Higgins

“Overall inflation pressures in energy, fuel, and wages are also impacting profitability,” Higgins said.

Inflationary pressures on consumers are expected to bring down dairy demand.

“In the US and the EU, inflation is at a 40-year high, shocking consumers and impacting lower-income families disproportionately.

“Weakening consumer purchasing power is making it difficult for milk processors to pass increased production costs on to consumers.

“And in some regions, like the EU, some retailers continue to resist additional price hikes for some low-margin products.”

Back home, Higgins said inflationary input cost pressures on fuel, fertiliser, feed and labour have cut into farmers’ margins and these will remain elevated through 2022 and into 2023.

“Our forecast for the new season remains unchanged at $9/kg milksolids, but we stress there are both considerable upside and downside factors to this price given the heightened uncertainty in the operating environment,” she said.

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