Rabobank flags rising global dairy prices, warns of downside risks ahead
While global dairy commodity prices continue to climb in most key exporting countries, the second half of the year is expected to bring increased downside risks.
Higgins says the dairy sector looks more balanced, due in part to less milk being produced in the coming 12 months by major milk producing nations and production matching demand, not flooding the market.
“The data shows that there are fewer hooves on the ground and milk yields are down, all of which will be to the advantage of NZ and help prices at the farmgate,” she told Dairy News.
A key factor for NZ is what is happening in China. Higgins notes that milk inventories in China, that have been high in recent times, are now declining along with the local milk supply.
She says this will set the scene for China to come back more positively into the market – especially in regard to whole milk powder.
“While this is good news, there are still some challenges ahead, with consumer data still showing us that sentiment is still weak and is not necessarily likely to change so much,” she says.
Higgins says the present situation is seen as a win for NZ, given the challenges that have existed in the Chinese market and still do for meat products.
But as in previous years there is still uncertainty. Higgins points to factors outside the control of NZ such as the Ukraine war and the attacks on shipping in the Red Sea. She says this could lead to another global supply chain shock, as occurred several years ago.
However, Higgins believes that the recent high farm input costs will likely see a reversal this year, resulting in more affordable fertilisers and agrichemicals.
“All this depends on what happens in the Middle East,” she says.
The other factor out of NZ’s control is the possibility of some global political instability. Almost half of the world’s population is set to go to the polls in 2024. Higgins says these elections are taking place in country’s which are some of NZ’s key trading partners such as the US, the EU, UK, Korea and Indonesia.
At the same time, NZ will have to tread a fine path with China – our biggest export market.
“Maintaining good relations with China is crucial for our farmgate prices,” says Higgins.
She says NZ must walk a fine line between standing up for its own values while constructively engaging with such a huge market, which gives us preferential access and can pay a premium for our products.
