Higher farmgate prices in most parts of the globe have failed to deliver more milk as rising feed and energy costs and weather setbacks subdue dairy farm output.
For the first time in a decade milk production in all of the world's "big seven" export regions is headed for four consecutive quarters of decline.
Frustratingly for farmers, global dairy commodity prices are also set to slide later this year says agribusiness banker, Rabobank.
Even in Australia, where farmgate milk prices will jump 15 per cent to record levels for 2022-23, Rabobank warned farm margins would be lower in the new season, not higher, due to inflationary cost pressures on fuel, energy, feed and labour.
Overseas, the bank noted changing consumer trends in developed countries as inflation bites harder than at any time since the 1970s.
Milk processors were trying to juggle weakening consumer buying power with higher fuel, energy and wage costs, and in Europe, an impressive 6.5pc rise in average farmgate payments so far this year.
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Meanwhile, China has cut its import demand in the first four months of 2022 because of coronavirus pandemic lockdowns and rising domestic milk production.
The Big-7 dairy export regions are the European Union, USA, New Zealand, Australia, Brazil, Argentina and Uruguay.
Australia's national milk production was down 3.4pc at 7.3 billion litres in April.
Rabobank tipped a marginal recovery in local volumes when the latest round of higher prices to farmers start from July 1, but noted any growth would come from a low comparable base.
Globally year-on-year production fell for the past three quarters, including a 2pc fall in the first quarter of 2022, and Rabobank expected another 1.1pc decline in the June quarter - something which has not happened across the Big-7 since 2012-2013.
Positive year-on-year growth was anticipated in the second half, pulling estimates for the 2022 calendar year's milk production figures back up to sit just 0.5pc down on 2021 figures.
Rabo's preliminary call for next year's production is a "below trend increase" of 0.5pc.
The bank's latest quarterly dairy industry report said structural issues may limit any milk production rebound.
Hurt by costs, weather
"The current slowdown in global milk output is directly related to higher costs of production and weather events," said the report's lead author and senior bank analyst, Andres Padila in Brazil.
Inflation pressures in energy, fuel, and wages were also impacting profitability across the Big-7.
Milk producers overseas faced higher corn and soybean prices, and weather disruptions were notable in certain regions, especially Oceania and South America.
Drought had eased in Argentina, but Brazil was copping ongoing climate disruption, while heat and drought had hit herds in the southern US at the same time as cool weather delayed pasture growth in the Pacific Northwest.
Although Rabobank's agri commodities markets report for May showed Chicago Board of Trade corn prices down slightly, they were still close to record highs and set to peak again in the current quarter, likely staying above US700 cents a bushel for at least another 12 months.
CBOT soybean prices would also be "challenging" until June 2023.
Environmental restraints
The bank's report also noted NZ and European herds were more likely to contract than grow in the coming year because of current and new environmental regulations and pressures.
In South America competition from grain croppers for land and capital continued to intensify, reducing dairy expansion options.
Australian senior dairy analyst, Michael Harvey, said local milk production had seen widespread declines.
However, Australian farmers were enjoying record milk price signals for 2022-23, and the early timing of announcements would provide confidence and cash flow support early in the season.
His modelling for new southern Australia prices stood at $8.40 a kilogram of milk solids, with processor offers ranging from $8.25/kg to $8.90/kg.
"This is important as dairy farmers face cost headwinds on a number of fronts," Mr Harvey said.
"Homegrown and supplementary feed will be more expensive, among other inflationary pressures and labour availability also remains a handbrake on expansion."
Promising season
Among the bright spots were supportive seasonal conditions promising good spring pasture growth, ample water availability for irrigators and non-milk dairy farm incomes remain supported by a "very firm beef market".
Across the Tasman, Rabobank is watching how China's displeasure with NZ will play out following recent criticism of Beijing's expansionist moves in the Pacific and elsewhere.
The report noted up to 40pc of NZ's dairy exports go to China.
NZ supplies 90pc of China's whole milk powder imports, 80pc of its butter and fat imports, 40pc of skim milk powder and 60pc of cheese.
"In a worst case scenario, with the political dispute leading to NZ even temporarily losing part or all its Chinese market access, it would be a huge blow to global dairy markets and all parties would lose."
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
