“Global dairy commodity prices continue to defy expectations, consistently delivering good returns,” agricultural economist Susan Kilsby said.
“However, we remain cautious about the outlook and the scope for dairy commodity prices to soften.”
ANZ also published a preliminary forecast for the 2021-22 season of $6.40, although subject to a high degree of uncertainty.
Kilsby said a lift in global milk supply when combined with slightly softer demand is expected to temper dairy commodity returns in the coming months.
Supply was building in the European Union and the United States but that would taker a few months to be felt in world markets because of the northern hemisphere winter slow-down.
Dairy farm incomes in the US were being boosted by cheese purchase programmes being run by dairy states for their needy citizens.
“Approximately one-third of farm incomes is coming from government support.”
After the Presidential election there is scope for these programmes to wind up but in the meantime farmers will chase milk production.
In Europe, strong milk production early in their season resulted in more commodity products like whole milk powder being made and stored.
European cheese and skim milk powder are at very competitive prices but butter is priced above the norm.
US SMP is very competitive and butter is trading at a discount.
Market conditions exist for a downward correction in NZ products to align them with those from elsewhere.
“The increase in the volume of dairy products exported globally, combined with the expectation that demand may soften along with incomes, means heightened downside risk for dairy commodity prices.
“At this point, there is no evidence that dairy consumption is slowing, but it is unlikely that demand for dairy products will get through the current recession unscathed.
“So far that has been the case, but there is a long road to recovery for most economies and therefore an elevated risk that demand for dairy products will weaken,” Kilsby warned.
