Milk prices will continue to harden through the first quarter of 2022, as the recent buoyancy in dairy markets is translated back into higher farmgate returns.

And while inflation and slower Chinese buying is expected to affect demand for dairy commodities during the second half of the year, milk prices are likely to hold at elevated levels.

“There has been a lot of dairy market movement, but the recent strengthening has not been fully translated into higher milk prices yet,” explained Rabobank food and agriculture analyst Richard Scheper.

“If we look forward towards Q1, we expect commodity prices to remain at a high level, with strong milk prices for the first three months [of 2022],” he added.

Peak milk price

Scheper predicted that peak milk price will be in Q1 of 2022 or slightly later.

He said “a market correction” is likely later next year, but the Rabobank analyst maintained that “elevated milk pries” are likely through the first half of 2022.

Rabobank’s 2021 Q4 Global Dairy Quarterly report noted that dairy production had fallen to a level not seen since 2014.

A combination of low global milk supply growth in the main export regions and strong import demand from China during 2021 have set the stage for the current price levels. Most other market fundamentals are also supporting high prices in Europe at the moment.

Peak milk production in New Zealand and Australia has been affected by poor weather, while high feed costs in Europe and the US has restricted farmers’ margins and output growth.

Slight production fall

Milk production in the seven leading dairy exporting regions – EU, US, Australia, New Zealand, Brazil, Uruguay and Argentina – is forecast to fall by 0.3% during Q4 compared with last year, according to Rabobank.

Although Scheper maintained that milk supplies will recover through Q1 of 2022, he said output growth during the first three months of the year will be “modest”.

“We do not expect to see really strong growth in milk supplies in the first six months of 2022. Markets will not be oversupplied,” he said.

This analysis tallies with the views of Irish dairy-sector officials.

“Prices will come back; they always come back. But I can’t see any change for the spring at least. The milk doesn’t appear to be there globally and commodity prices, although strong, have not reached stupid levels,” one dairy source told the Irish Farmers Journal.

Butter prices on the Dutch spot market have hit €5,500/t, up from €4,400/t in October. Meanwhile, skim milk powder has topped €3,250/t, with whole milk powder making over €4,000/t.

Farmgate milk prices are generally at 37c to 38c/l excluding VAT for November supplies or 39c to 40c/l including VAT.