Report backs profits

Global dairy prices continue to trade at elevated levels, despite being “stuck in neutral” for the past three months, as the market slowly returns to normal from the pandemic-led channel distortion, according to the latest Rabobank Global Dairy Quarterly report.

The report said while underlying market fundamentals remained “relatively neutral”, with dairy demand in the United States and China reaching pre-pandemic levels through retail and foodservice channels, risk and uncertainty still “abound”.

And, it said, this is “supporting commodity pricing at elevated levels”.

The Australian farm gate sector is poised for another season of “sustained profitability”, according to Rabobank senior dairy analyst Michael Harvey, as near-record milk prices are expected in the coming season.

“Conditions are in place for Australia’s dairy farmers to again register healthy profit margins in 2021-22,” he said.

Revising up the bank’s milk price forecast, Mr Harvey said Rabobank was forecasting a full-year milk price of $6.90/kg milk solids in the southern export sector in 2021-22.

“We have revised our forecast up from $6.50/kg MS, as market conditions support the recent milk price announcements based on our models,” he said.

“With a number of dairy companies announcing second and third step-ups prior to the season getting under way on July 1.

“That said, our modelling suggests there is limited price upside as the season progresses unless the global market and the Australian dollar outperform our expectations.”

Mr Harvey said the “healthy profit margins” come despite the increase in purchased feed prices and home-grown feed inputs.

“While higher feed prices are expected to linger well into 2022, these will be mitigated somewhat by the ample availability of home-grown feed in the months ahead.”

In terms of milk supply growth, which has expanded by 0.7 per cent in the season to date (as to March), Australian milk production is forecast to expand by 1.3 per cent in the 2021-22 season to 8.8 billion litres.

“Yield improvement is key to this growth, as milk production remains constrained by low national herd numbers and the hesitation to rebuild herds and expand operations despite attractive prices,” Mr Harvey said.

He said Australian dairy exports also remained strong, despite freight issues and modest milk supply growth, with dairy exports higher across all key commodities compared to the same period in 2019 — and double-digit increases in butter, liquid milk and cheese.

Despite this positive backdrop, the Rabobank Global Dairy Quarterly report said “global commodity markets are delicately poised”.

And while further upside cannot be ruled out, the peak is near.

This is largely on the back of an expected softening in Chinese import demand in the second half of 2021, with the report saying it should be enough to trigger a price correction that is likely to occur in the later stages of 2021.

In terms of global supply, dairy supply growth has also been “stuck in neutral”, with Rabobank expecting a modest yearon-year production growth of one per cent during the next 12 months for the ‘‘big seven’’ export regions.