Good opening milk prices indicate farmgate prices will remain strong

Chinese demand dropping off has been the major factor influencing prices, as new Covid-19 outbreaks and lockdowns across China have caused supply chain delays and lower demand.

"The drop in demand isn't expected to be long-term, as the overriding demand and supply factors are supporting strong prices," head of institutional food, beverage and agribusiness at ANZ Tash Kemp said.

"The Ukraine conflict which has led to large jumps in fuel, feed and fertiliser prices, has also led to skyrocketing prices and without any sign of a conclusion being reached that upward pressure on dairy prices is expected to continue.

"With Russian bans on western milk imports, high oil prices, high feed and fertiliser prices and very strong milk prices, industry observers would be forgiven for seeing the same factors which contributed to the dairy price crash in 2015."

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The report highlights that the current market circumstances are not the same as 2014.

Prior to the crash, high prices were combined with a lifting of production quotas in the European Union causing a massive increase in global supply at the same time as Russia banned western imports.

This time there isn't the massive amount of new supply in the global market, with supply in Australia, and most other major dairy producing countries around the world still tight.

Additionally, in 2015 the surplus of milk production over consumption reached almost half a million tonnes - this year, the United States Department of Agriculture is forecasting for the production surplus to fall to just 24,000 tonnes.

Production in New Zealand has also been hampered by the weather, while high input costs have resulted in lower production in the United States and European Union.

"On a retail and consumer front, with significant food price inflation becoming a major issue for countries around the world, there had been concerns about a change in consumer buying habits, although to date, this doesn't seem to have eventuated, with global and domestic demand continuing to perform strongly," Ms Kemp said.

"Domestically, with Australian milk and dairy produce prices remaining lower than the overall Australian food price index and consumer price index, domestic consumption is expected to remain relatively resilient.

"Given all this, the domestic and global supply shortage bodes well for good prices for the remainder of the season and good opening prices going into 2022/23, with all indications are that farmgate prices will remain strong."

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