In what's being described as a 'perfect storm', global dairy prices are being pushed up and up, having risen already this year by about 14%.
The current season that ends in May is already set to break in terms of the milk price for farmers.
But now there's increasing signs that the following season running into 2023 may be a hot one also.
The giant dairy co-operative Fonterra is currently giving a forecast range for its farmgate milk price in the current season of between $8.90 and $9.50 per kilogram of milk solids. This means the current 'mid-price' at which farmers receive advance payments is $9.20.
Assuming the price holds at those levels - and we are already getting well through the season - it will smash the previous milk price record paid to farmers of $8.40 in 2014.
This season's been looking like a bumper one for some time - but prices had been expected to tail off in the following year. However, economists are now pushing their milk price forecasts for next year much higher as well.
Following yet more extremely strong results in the latest GlobalDairyTrade auction in the early hours of Wednesday, Westpac senior agri economist Nathan Penny has bumped his forecast price for the 2022-23 season up by a dollar to $8.50 per kilogram of milk solids. Such a price if achieved would of course also bust the previous record from 2014.
This means all the major bank economists are now forecasting a milk price well in excess of $8 for next year.
In his latest NZ Dairy Update Westpac's Penny says with the rising dairy prices globally there are now also growing "upside risks" to his "already record high forecast for the 2021/22 season of $9.50/kg".
In talking about "the perfect storm for global dairy prices", Penny says on the global dairy supply side, "essentially everything that could go wrong has gone wrong".
He says over the year to date, bad New Zealand weather has slammed the brakes on New Zealand dairy production.
"Indeed, we now expect New Zealand production to fall by 3.0% compared to last season. Previously, we expected production to fall by 1.5%."
Meanwhile, Penny says dairy production elsewhere in the world is also "soft".
"Indeed, a similar combination of bad weather and high feed and other costs has hit production in other key exporters such as the EU and US. We can now add Ukraine-Russia tensions to the supply mix. Both countries are major grain producers, while Russia is a major oil and gas producer. As a result, the tensions are putting further upward pressure on already sky-high global grain and fertiliser prices. In turn, this is adding even more upward pressure on global dairy prices.
"With the above in mind, we now expect global dairy prices to start the 2022/23 season from a higher starting point. We still expect prices to moderate over the season as global dairy supply eventually rebounds, nonetheless prices for the season as a whole are likely to average higher than we previously expected."
Penny says he expects Fonterra will be taking advantage of the lower NZ dollar against the US currency, particularly for the 2022/23 season.
"In contrast, there will be limited benefit to this season’s milk price as Fonterra will already be largely hedged for the season."
6 Comments
under what rock have you been living?
https://en.wikipedia.org/wiki/Bubble_tea
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