Engines revving for the new season
The past few months have felt like a quick acceleration towards the June 30 finish line, and all eyes are now on the starting line for the upcoming season.
With 2020-21 being labelled one of the best in recent history for many, dairy markets have managed to speed through COVID-19 challenges and end up in an advantageous starting position.
Given supportive fundamentals at play — as discussed in Dairy Australia’s June Situation and Outlook report, due for release on June 30 — odds are strong for when the light turns green for the new year.
Global demand for dairy remains strong and the end of lockdowns in several markets has generated an uptick in overall purchases, with China remaining the key price driver.
Chinese demand has consistently strengthened in the 12 months to March, with imports of whole milk powder (WMP), whey powder and cheese surging compared to last year.
Over the same period, skim milk powder (SMP) and butter imports also increased 27 per cent and 42 per cent respectively.
Close to record milk price prices, an appreciating Chinese yuan and increased domestic consumption continue to drive this demand push.As global demand has picked up speed, shipping challenges continue to create headaches for anyone looking to export products.
Between container shortages and supply chain bottlenecks, many market participants have built up surplus inventory to cover for shipping delays.
Dairy sales have increased, which saw commodity prices grow — particularly for milkfat products, like butter and cream.
Powder prices have also increased consistently since the start of 2021, supported by strong demand from China and South-East Asia.
While demand from foodservice sectors across the world has far from recovered, the easing of restrictions, combined with an uptick in retail demand, has had a significant impact on the market’s current position.
In the other lane, global milk supply remains relatively stable.
The United States continues to produce more milk than previous years, on the back of favourable operating conditions and an increase in the domestic herd.
Despite a declining national herd in New Zealand, milk production is forecast to grow modestly this season, up 1.2 per cent, according to the latest USDA estimate.
However, slowing production in other countries has kept the current balance in check.
High feed costs in the European Union have curbed milk flows, incentivised culling, and smaller herds in Europe’s key producing countries place further constraints to any significant production expansions.
Closer to home, operating conditions have been favourable after a wet and cool summer in Australia, supporting pasture growth and feed production.
This has seen feed and water costs ease, as demand for these inputs remains muted.
However, the legacy of a challenging few years, together with high beef prices and strong competition for land in key regions, have increased farm exits and constrained milk flows.
Year-to-date milk production in March is up by 0.7 per cent, and Australia’s milk pool is expected to be relatively unchanged this season.
A detailed forecast for the upcoming 2021-22 season will be released in Dairy Australia’s upcoming June Situation and Outlook report.
When the chequered flag is waved on June 30, many factors support a strong start for the new season.
At the time of writing, three processors had released opening prices for 2021-22, all coming in higher than last year.
Global demand remains well supported and commodity prices have increased.
As underlying market fundamentals look more favourable, improved farm profitability has also lifted sentiment, hopefully leading to a smooth ride ahead.