Friday, March 29, 2024

Bumpy ride ahead as Rabobank forecasts a $9 new season milk price

Avatar photo
Reading Time: 3 minutes

The ongoing impact of global events on the world dairy market along with uncertainty around demand has seen Rabobank set a $9/kg MS forecast for the new dairy season.

Seismic global events – including the war in Ukraine and ongoing covid-19 lockdowns in China – continue to reverberate in dairy markets across the globe. 

Rabobank senior agricultural analyst Emma Higgins said the macro-economic influences on the dairy sector are now far more uncertain than was the case last season.

“Tepid global milk supply growth should ensure the majority of New Zealand’s dairy farmers enjoy a sixth consecutive profitable season in 2022-2023,” she said.

“But with the demand outlook so hazy, and significant volatility anticipated in the pricing of both dairy commodities and key farm inputs, dairy farmers should prepare for a bumpy ride ahead.” 

The bank’s New Zealand Dairy Seasonal Outlook report said milk production across the ‘Big 7’ dairy producers (Argentina, Brazil, Uruguay, EU, UK, New Zealand and Australia) is set to remain constrained across most of 2022, providing a supportive base for global dairy commodity pricing. 

“Despite strong farmgate milk prices in most regions across the world, the major export countries will continue to grapple with rising costs of inputs, lack of labour, unfavourable weather, and variable feed quality and costs,” she said.

Higgins anticipated a continued decline in the first half of 2022 milk production among big exporters before a mild recovery starting in the second half of 2022 and into the first half of 2023.

Anticipating global dairy demand was far less straightforward, with demand risk significantly more elevated than usual.

The conflict in Ukraine is a key factor heightening this risk due its negative impacts on the global economy and the potential for adverse spin-off impacts on dairy demand.

Economic forecasters slashed their global economic growth expectations including the International Monetary Fund (IMF), which last month cut its forecast by 0.8% to 3.6% for 2022. 

“The outlook for farm input cost pressure is also worsened by the ongoing geopolitical conflict with prices for both fertiliser and oil prices likely to remain high with supply certainty caught in the cross-fire of the war.” 

Ongoing Chinese lockdowns are a further factor carrying significant downside implications for global dairy demand. 

“At the current time, fully locked-down Chinese cities account for around 10% of China’s 2021 GDP, with this rising to 35% when also considering cities in partial lockdown,” Higgins said.

“And as the world’s largest importer of dairy products, these movement restrictions are creating far-reaching reverberations well outside of China with global supply chains, manufacturing bottlenecks, supply and demand imbalances and world economic growth all subject to the extent of the Chinese lockdowns.

“Our base-case assumption is that many regions in China will remain under various lockdown policies for much of this year, with Shanghai lockdown restrictions beginning to ease somewhat from later this month.”

China remains key to New Zealand farmer fortunes with around 45% of New Zealand dairy exports shipped to this country last year.

Import demand from this country firmly remains the central consideration for New Zealand’s farmgate milk price forecast. 

Higgins said she was becoming increasingly concerned about the impacts of its continued zero-covid approach.

A number of other factors also have the potential to alter New Zealand’s milk price forecast needle in the coming season. 

These include the potential for recession in the US and the EU as central banks hike interest rates, while processors passing on higher ingredient costs may lead to global consumer dairy demand buttoning off more than expected.

“There is also the risk of secondary economic sanctions being imposed on China in the event they were to support Russia in the conflict with Ukraine.

“On the flip side, the upside risks include key dairy production regions struggling to increase milk production output, supply scarcity supporting prices at a higher level as buyers continue to purchase ‘just in case’, and further weakening of the New Zealand dollar,” Higgins said.

Total
0
Shares
People are also reading