Westpac senior agri economist Nathan Penny points out that both countries are major grain producers, while Russia is also a major oil/gas supplier. “As a result, the tensions are putting further upward pressure on already sky-high global grain and fertiliser prices,” says Penny.

“In turn, this is adding even more upward pressure on global dairy prices.”

Global dairy prices have seen unprecedented growth in recent months.

After last week’s gains on Global Dairy Trade, overall prices are around 43% above their five-year average. Penny notes that the price strength overnight was broad based.

“All of the products that we monitor posted price gains. Skim milk powder prices led the price gains (up 6.0%), with butter prices posting the next-biggest gain of 5.1%.

“Notably, butter and cheddar prices posted fresh record highs, while anhydrous milk fat prices are now the second-highest on record,” he says.

He points out that on the global dairy supply side, “essentially everything that could go wrong has gone wrong”.

Over the year to date, bad New Zealand has put the brakes on milk production.

NZ milk production is now expected to fall by 3% compared to last season. Penny says, previously, he expected production to fall by 1.5%.

Meanwhile, dairy production elsewhere is also soft. “Indeed, a similar combination of bad weather and high feed and other costs has hit production in other key exporters such as the EU and US,” he says.

“We can now add Ukraine-Russia tensions to the supply mix.”

ASB economist Nat Keall says the key takeaway for him is that dairy price gains are proving broad-based across all product types.

Keall says that’s a positive given it continues to suggest strong underlying dairy demand is supporting prices, not a shortage of one or two products.

He notes that price gains over the first couple of months of 2022 have been widespread and sustained, so that the overall GDT index is now only a few points shy of its previous record high back in 2013.

“And back then, the index was largely being boosted by WMP and SMP, rather than the widespread gains we’ve seen during th current boom.

“We’d expected further price gains in the near term, so today’s result doesn’t impact our forecast much.

“Still, it’s good to have yet more confirmation. We’ve long said that a record-high farmgate milk price for the current season is a certainty at this point; the question is exactly how high it will go.”