Thursday, 02 June 2022 06:55

Editorial: Another solid season looms

Written by  Staff Reporters
Milk prices are expected to remain at elevated levels this new season. Milk prices are expected to remain at elevated levels this new season.

OPINION: Given what's happening around the world, New Zealand dairy farmers are on to a pretty good thing with its internationally envied farming system.

A record milk price this season and another solid opening forecast for the new season bodes well for farmers’ income.

Dairy demand is still quite strong and supply remains constrained globally, especially in the US and Europe.

However, there are some short-term challenges: Covid, China’s most recent lockdowns and the unrest in Sri Lanka – a key market for Fonterra milk powder.

Milk prices are expected to remain at elevated levels this new season. While some economists downgraded their opening forecast payout for 2022-23, it remains at historically high levels. Dairy commodity prices are expected to continue to fall in the coming months but relatively low global milk supplies are expected to put a floor under prices later in the year.

Global risks are highly elevated at present, driving uncertainty; the Ukraine situation is adding pressure to what was already an overheated commodity market.

Oil prices have skyrocketed but continue to seesaw on headlines about how the war is progressing. Energy commodities were already in tight supply before the invasion and the supply situation is now a lot less certain.

High gas prices are pushing up fertiliser prices which, in turn, is pushing up the prices of grain and food in general.

The cost of producing milk is rising, particularly in the northern hemisphere, where indoor farming systems mean much greater exposure to high prices for fertiliser, grain and fuel. All this means New Zealand’s mostly pasture-based farming can still expect solid returns for its products.

Normally, high milk prices trigger a jump in production, but there is no strong evidence that production has rebounded.

And the models say it will take until the second half of the year to get significant production growth, with the risk being that input costs increase further, the weather holds back production or some other unexpected event comes along and knocks milk production back again.

Most economists believe dairy prices globally have probably peaked, but the downside should be limited by the high input costs, unless demand absolutely tanks. So NZ dairy farmers can look forward to another solid season, which has just kicked off.

When we work through the numbers, the record high milk price should more than offset the expenses. For most NZ dairy farmers, they will be somewhere between profitable and achieving record profitability. Yes, costs will remain high but the high milk price will ensure good times will continue.

More like this

Power plant to close

Energy company Contact is closing its 44-megawatt Te Rapa power station in June next year.

Prices to remain high

Westpac senior agricultural economist Nathan Penny expects prices to remain elevated as global supply remains very tight.

Bank lifts milk price forecast

Dairy prices dipped in the latest global auction but this didn't stop ASB Bank from revising its 2022-23 season forecast milk price to $10/kgMS.


Yili tops tally

Chinese dairy giant Yili topped the tally at the World Dairy Innovation Awards held recently in France.

Deer milk wins global award

Deer milk made by state-owned farmer Pāmu has won the ‘Best Dairy Ingredient’ category at the prestigious World Dairy Innovation…

DWN secures state funding

A Dairy Women’s Network (DWN) programme has been named as the recipient of two years of funding support from the…

Machinery & Products

Beauvais hits one million!

Massey Ferguson recently announced that its Beauvais factory in France has produced its 1,000,000th tractor, having started manufacturing tractors on…

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Tinder for cows!

OPINION: Irish farmers can now swipe right on a tinder type dating app for cows!

Cow and cars

OPINION: Cows are the favourite target of vegans, Greenpeace, the Green Party and plant-based food advocates.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter