Global farmgate milk prices are strong, and are at near-record levels in Australia, as the demand for dairy remains robust according to Rabobank.
The potential for a major demand shock in the dairy sector is limited, Rabobank says in its Global Dairy Quarterly report – even though uncertainty related to COVID-19 is likely to continue.
Demand in China is said to be the likely cause of any downside in the global dairy market with any slowdown in demand coming if the Chinese state reduces its import figures.
The Chinese dairy market remains strong, with domestic production and inventories continually increasing while supply is also expected to outpace demand in the nation, meaning imports may decline in the second half of this year.
“Global markets may be able to absorb lost sales through 2021, but pressure will be felt in 2022, initially in Oceania, but eventually rippling through global dairy markets,” the Rabobank Global Dairy Quarterly report says.
“The growth rate has been sustainable without becoming overly burdensome on markets so far, but any slowdown in global demand would quickly lead to inventory build,” it says.
China’s likely decline in import figures means the world’s ‘near-term peak’ of dairy commodity prices is likely in the rear-view mirror; however global milk supply continues to improve on an already ‘run of interrupted growth’ – albeit at a slower rate.
On farm, margins remain mixed across much of the globe, including in key markets of the United States and European Union, yet Australia continues to experience high enough milk prices to offset higher costs.
Michael Harvey, Rabobank’s senior dairy analyst, says the positive farm margins Down Under will lead to “healthy on-farm profitability.”
“Near-record milk prices, affordable purchased feed prices and supportive seasonal conditions have set many up for positive trading conditions ahead,” he says.
“We have revised up Rabobank’s farmgate milk price to A$7.05/kgMS for 2021-22. While this is broadly in line with the official farmgate milk prices range, it also takes into account the limited upside in global dairy markets for the remainder of this season.”
Harvey also says Aussie dairy farmers would be heading towards a peak in Spring, with milk production expected to grow by 1.5 per cent in 2021-22.
The figure would see milk production reach 8.9 billion litres – a national high since 2017-18, however persistent lockdowns pose a threat to the consumer market.
“With the spring peak just around the corner, conditions on the farm remain very favourable with the latest seasonal outlooks pointing to average winter-spring rainfall in key production regions,” he says.
“With a large proportion of consumers in lockdown due to the Delta variant, the Australian consumer market is on a rollercoaster. That said, pantry-loading seems to be less pronounced this time round and dairy consumption seems to be holding firm in the face of all this uncertainty.”