Australia’s dairy producers are set for another profitable season ahead – with record high milk pricing and favourable seasonable conditions – but risks are building, Rabobank says in its just-released Australian Dairy 2022/23 Seasonal Outlook.
The report, titled ‘Be Confident, but Beware’, says while global dairy market “fundamentals” remain currently strong and high local milk prices will support profitability, farmer margins are under pressure from increasing costs.
Meanwhile a market correction is on the horizon, as a “subtle rebalance in global markets occurs”, while “turbulence” also “looms large with continuing impacts from seismic global events”.
However, the report says, “a soft landing in global markets and a strong currency will still support record milk pricing in 2022/23”, with Rabobank forecasting an indicative milk price of AUD 8.40/kgMS for southern Australia. This would be a record price and 15 per cent higher than benchmark milk prices for the 2021/22 season, said report author, Rabobank senior dairy analyst Michael Harvey.
“The global dairy commodity market is doing the heavy lifting in propelling farmgate milk prices to record levels,” Mr Harvey said.
“As a result, Australia’s southern (dairy) export region enjoyed record milk pricing in the 2021/22 season, with new records on the horizon for 2022/23.” Commodity prices for Oceania-origin butter and cheese are trading at record levels and the milk powder complex is nearing record highs, he said.
Global dairy markets are in “unchartered territory”, Mr Harvey said, with global market tightness driven by a “complete shutdown in milk supply growth across the ‘export engine’”.
“Global dairy markets are witnessing a rare event, with the ‘Big 7’ dairy exporters (the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay) all recording lower milk production this year than last,” he said.
“This supply crunch has primarily been driven by a combination of rising costs, supply chain disruptions and weather-related impacts.”