Australia's dairy farmers are riding high with record milk prices to flow into 2023.
One of the nation's largest farm lenders, Rabobank, today said the high prices are supporting positive farmgate margins for the 4500 registered dairy farms around the country.
Rabobank's senior analyst (dairy and consumer foods) Michael Harvey said the milk prices "have mostly" offset major cost headwinds - fertiliser, fuel and feed - for dairy farmers.
Only labour availability remains as a major challenge.
Average farmgate milk prices across Australia's southern export regions range between $9.50-10.00/kgMS.
Rabobank is not expecting further major lifts in milk prices as the season draws to a close.
Manufacturers and supermarkets are lifting prices of dairy products as a result of the high farm price which has led to some Aussie consumer resistance, but exports remain strong.
Mr Harvey said milk prices have risen at the fastest rate since records began.
In its quarterly dairy outlook, Rabobank said consumers are facing cost-of-living pressures from all sides and signs of dairy demand weakness are emerging as a willingness and ability to spend on discretionary items softens.
"Households are trading down to private label offerings, with volume declines in grocery and foodservice channels being more evident - it looks set to be a tough year ahead for Australian consumers," Mr Harvey said.
Rabobank is revising its milk production forecast downward for 2022/23, with the impact of production constraints, the result of flooding and excessive rainfall, becoming visible in the peak production months of October and November.
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The report said as of October, Australian milk production is down 6.6 per cent for the season to date, with widespread decreases across all states/regions.
Rabobank said many dairy production regions on Australia's east coast have been dealing with excessive rainfall and flooding.
"There has been significant feed and fodder losses as a result of the rain and flooding - it is one of the key challenges faced by impacted farms," Mr Harvey said.
"Some supply chain/logistics issues have been reported as a result of the wet weather - including some dumping of milk - but not to the point of having a material impact on milk processing," he said.
The upside of all the rain for dairy farmers is the increase in supplementary feed supplies.
A large winter wheat crop is now being harvested despite the rain and flooding delays across the grain belt.
Dairy exports are still growing despite the local fall in milk supply.
Mr Harvey said improvements in global freight markets and "normalised" consumer behaviour post pandemic is being experienced across export markets in Asia.
"Australia's total dairy export volumes (tonnage) were 4pc higher in the first two months of 2022/23 season," he said.
"However, it was a mixed bag - liquid milk exports are running strong, but it has been a slow start for cheese and whey."
Weaker global dairy markets remain a key theme as 2022 comes to a close, the report says.
But there is clear divergence between regions and dairy products.
The Rabobank report says cheese and butter prices in the US and EU have performed the best, while Oceania Global Dairy Trade powder and butter prices have been declining.
Oceania skim milk powder (SMP) prices led the way, dropping 14pc on average from the third quarter of 2022 and falling 34pc since the peak in the first six months of the year.
"China remains conspicuously quiet on the buying front compared to last year as it digests local inventories and imported stock," the report said.
The rising US dollar is also starting to impact retail sales.
Rabobank expects the global milk supply "recession" experienced for the past five consecutive quarters to end, with production having progressively declined over that period.
The report says there are "traces of life" from the global exporters driven by the US and Europe.
Rabobank expects milk supply will gain "modest" momentum in 2023 from most regions apart from Australia.
Milk production from the big seven dairy exporting regions - New Zealand, Brazil, Argentina, Uruguay, EU, US and Australia - is anticipated to grow by one per cent year- on-year, enough to offset the 0.8 per cent decrease in 2022 and remain on par with 2021's production, the report said.
The report says dairy demand in the US has remained defiant in the face of cost-of-living challenges, while European consumers are now feeling the pinch at the retail level.
Rabobank analysts say 2023 demand across many commodities, not just milk, depends China's COVID-19 lockdown policy changes.