On August 16, prices at the dairy auction decreased overall by 2.9%, while important whole milk powder prices fell by 3.5%. Out of the previous 11 auctions, it was the 10th time that the total price fell. Penny notes that “prices have really been down since March.” In fact, although total costs are down 29%, the cost of whole milk powder has decreased by around a third.
Prices were astronomically high in March. The total price drop is 3.5% in yearly terms, whereas the price decline for whole milk powder is 9.8%. When taking a longer view, the current prices for whole milk powder and the whole market are 3.4% and 2.7% higher than the 5-year average, respectively.
Dairy auction price increases actually outpaced price decreases by product (3 to 2). Prices of cheddar in particular defied the trend and increased by 4.2%. In the meanwhile, the costs of butter and skim milk powder hardly increased (up 0.2% and 0.1%, respectively). The cost of anhydrous milk fat, however, fell 9.8%.
According to Penny, this outcome was a little weaker than anticipated. “Before the auction, the futures market indicated that whole milk powder prices would decline by around 2%, when we had anticipated a 1% decline. The extra decline could have been caused by this week’s deterioration in market mood after the publication of disappointing Chinese activity figures for July.
Additionally, the Chinese yuan declined, increasing the price of dairy products for Chinese consumers that were priced in USD. Westpac’s prediction for 2022–2023 milk prices of NZ$9.25 per kg (US$5.68) remains vulnerable to negative risks.
poor global dairy supply
However, Penny notes that the global dairy supply is still extremely low, and that we continue to anticipate a recovery in Chinese demand over the coming months as Covid-19 limitations are further relaxed and policy stimuli take effect. On the basis of that and the NZD/continued USD’s support, we continue to anticipate a strong milk price this season.
GLOBAL DAIRY MARKET PRICE OVERVIEW
According to Rabobank, the auction results provide more evidence in favour of the company’s Q2 worldwide estimate that the peak in milk powder pricing would occur in the first half of 2022. Prices will be lower during the second half of this year and into 2023, according to Rabobank.
According to Rabobank’s Commodity Markets Research Monthly, the negative movement brings the index back to its March 2021 levels. According to Rabobank, “Demand-side uncertainties continue, largely as a result of China’s rigorous lockout rules and plentiful supplies.”
As the herd is still 67,000 head below last year’s level, the US produced 19.14 billion pounds (8.68 billion kg) more milk in July, an increase of 0.2%, driven by a 0.9% increase in milk per cow. The dairy herd reached a high of 9.501 million heads in June 2021 before progressively declining through January 2022. Since then, there have been 49,000 more cows introduced to the herd.
manufacture of milk
In its WASDE report for August, the US Department of Agriculture increased US milk output. Production forecasts for 2022 were raised from 226 billion pounds (102.5 billion kg) to 226.8 billion pounds (103 billion kg), and for 2023, from 228.3 billion pounds (103.55 billion kg) to 229.2 billion pounds (103 billion kg) (103.96 billion kg).
Expect milk to increase in value.
The greatest exporter of cheese in the world, the European Union, is having issues with dairy producers due to the very dry weather. Farmers in Spain and France who raise animals for the production of dairy have seen their herds’ grazing pastures drying up, which has hampered the production of milk, butter, and cream. Due to record inflation and the effects of Russia’s conflict in Ukraine on the supply chain, dairy producers in the EU already have difficulty affording feed.
In addition to increased food and energy prices, labour shortages, and disease outbreaks, farmers must contend with these issues. The European Dairy Association’s secretary-general, Alexander Anton, told Bloomberg that while “we have been in this situation previously in prior dry years,” the situation currently is “absolutely amazing.” Expect milk to increase in value.
