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Rabobank Dairy Quarterly – returning to normal but risks abound

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Rabobank, Media Release, 8 June 2021

Global dairy prices continue to trade at elevated levels, despite being “stuck in neutral” for the past three months, as the market slowly returns to normal from the pandemic-led channel distortion, according to the latest Rabobank Global Dairy Quarterly report.

The report says while underlying market fundamentals remain “relatively neutral”, with dairy demand in the US and China reaching pre-pandemic levels through retail and foodservice channels, risk and uncertainty still “abound”. And, it says, this is “supporting commodity pricing at elevated levels”.

“Farmgate milk prices have been on a higher trajectory journey for most farmers”, the report says, with Australia also on track for a “marginally higher milk price” in 2021/22 in the vicinity of AUD 6.90/kgMS.

Despite this positive backdrop, the Rabobank Dairy Quarterly says “global commodity markets are delicately poised”. And while further upside cannot be ruled out, the peak is near.

This is largely on the back of an expected softening in Chinese import demand in the second half of 2021, with the report saying “this should be enough to trigger a price correction in the dairy complex that is likely to occur in the later stages of 2021”.

China “has been the primary pillar of price support”, the report says, and as such its import demand will remain “the key demand determinant shaping commodity dairy prices in 2022.”

In terms of global supply, dairy supply growth has also been “stuck in neutral”, with Rabobank expecting a modest year-on-year production growth of one per cent during the next 12 months for the Big-7 export regions. This is below the bank’s previous expectations and the long-term historical growth rate largely on the back of a lacklustre European flush.

That said, there are strong growth prospects for the US and New Zealand, as the US herd continues to grow and strong price signals set the “foundations for peak milk flows” in New Zealand.

And on an annualised basis, the report says, this should see the combined exportable surplus expand in 2021.
While the Dairy Quarterly warns the “global pandemic is far from over”, with the “prevalence of third and fourth waves, new variants, and slow vaccination rollouts in some regions”, it says the macroeconomic settings are improving albeit the recovery could “lose some steam” as pent-up demand dies out and fiscal support is wound back.


Michael Harvey
Michael Harvey. Photo: Rabobank

The Australian farmgate sector is poised for another season of “sustained profitability”, according to Rabobank senior dairy analyst Michael Harvey, as near-record milk prices are expected in the coming season.

“Conditions are in place for Australia’s dairy farmers to again register healthy profit margins in 2021/22,” he says.
Revising up the bank’s milk price forecast, Mr Harvey says Rabobank is forecasting a full-year milk price of AUD 6.90/kgMS in the southern export sector in 2021/22.

“We have revised our forecast up from AUD 6.50kg/MS, as market conditions support the recent milk price announcements based on our models,” he says, “with a number of dairy companies announcing second and third step-ups prior to the season getting underway on July 1.”

“That said, our modelling suggests there is limited price upside as the season progresses unless the global market and the Australian dollar outperform our expectations.”
Mr Harvey says the “healthy profit margins” come despite the increase in purchased feed prices and home-grown feed inputs.

“While higher feed prices are expected to linger well into 2022, these will be mitigated somewhat by the ample availability of home-grown feed in the months ahead,” he said.

In terms of milk supply growth, which has expanded by 0.7 per cent in the season to date (as to March), Australian milk production is forecast to expand by 1.3 per cent in the 2021/22 season to 8.8 billion litres.

“Yield improvement is key to this growth,” Mr Harvey says, “as milk production remains constrained by low national herd numbers and the hesitation to rebuild herds and expand operations despite attractive prices.”

Australian dairy exports also remain strong, he says, despite freight issues and modest milk supply growth, with dairy exports higher across all key commodities compared to the same period in 2019 – and double-digit increases in butter, liquid milk and cheese.


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