Rabobank’s move came after Fonterra lowered its midpoint forecast for the 2022-23 season from $8.50 a kg to $10 a kg to $8.50 a kg to $9.50 a kg.
In its most recent Global Dairy Quarterly report, Rabobank said that dairy farmers would have to walk a tightrope next year.
After this year’s record farm-gate prices in many exporting regions, the milk supply seems to be finally growing.
But as demand drops, the bank thinks that farm-gate milk prices will follow the trends of the global commodity market and go down next year.
“Dairy commodity prices are still pretty high because supply growth has been slow,” said Emma Higgins, a senior agriculture analyst at Rabobank.
She said that short-term dairy demand was likely to go down because food prices were going up everywhere in many economies.
Still, the bank wasn’t giving in to the urge to lower its own $9 a kg milk price forecast.
“Our forecast is the same as it was last quarter, but it’s important to note that the risks to this forecast are heavily skewed to the downside. Any possible rally to the upside would depend on a supply shock in the northern hemisphere or a meaningful reopening of China in the new post-Covid world,” she said.
Westpac thinks the price will be $8.75 per kg, BNZ thinks it will be $8.90 per kg, and ANZ thinks it will be $8.75 per kg. Earlier this month, ASB kept its prediction of $9.40 per kg.
After five straight quarters, the global milk supply seems to be coming out of a slump. This is due to higher production in Europe and the United States.
Most places should see a small increase in milk supply next year, except for Australia, where milk flows were again hurt by bad weather in the fourth quarter of this year.
The milk flows from the Big Seven export regions of New Zealand, Australia, the EU, the US, Uruguay, Brazil, and Argentina are expected to grow by 1% next year.
Ms. Higgins said that was enough to make up for the 0.8% drop this year.
She said that prices went down in different places and for different things in the fourth quarter.
The large cheese and butter markets in the EU and the US are still high, but they are not as high as they were earlier this year. Over the past three months, prices on the Oceania GDT index have gone down by 9%, which has spread to the global milk powder markets.
Over the next year, the high costs of farming and the drop in buyers’ disposable income are likely to cause more problems. Inflation rates that were expected to happen were most likely to hurt emerging markets.
In spite of rising costs of living, dairy demand in the US has stayed strong, but European consumers are now feeling the pinch.
There were still questions about what would happen to China in the future with Covid-19 policies and as the country worked through its local stocks and imported stock.
Domestically, New Zealand’s milk production has been affected for the second year in a row by the changeable spring weather.
“This is a clear trend for this season,” Ms. Higgins said. “From now until October 2022, milk supply is 3.6% less than it was last year.” “Only Otago-Southland is showing signs of being able to produce milk again. Feed is plentiful in the south because it is warmer there.”
She said that could cause the milk production for the whole season to drop by up to 2%.
She said that rising interest rates, fuel prices, and feed prices were the main causes of inflation on farms.
Fonterra also increased its earnings forecast from 40c to 60c per share to 50c to 70c per share earlier this month after reporting a good start to the 2022-23 season.
CEO Miles Hurrell said that the company is off to a good start even though geopolitical and macroeconomic events have caused higher costs at every step of its supply chain.
He said that the situation was the same behind the farm gate, where farmer shareholders had to deal with much higher costs of inputs.
He said that New Zealand’s milk production was 2.9% less than it was at the same point last season.
Fonterra has seen a drop in demand for whole milk powder, especially in Greater China, where more milk is coming from other suppliers.
After taxes, the co-profit op’s went up 84% to $214 million.
