The lift in prices in recent months has been driven by the supply side and not much will change before the 2022 spring flush in the EU and US, but even then, milk growth will be limited with weak farm margins. The rising cost pressures are impacting producers and already constraining milk output. US production has slowed with a faster cut in cow numbers due to exits in the southwest. Higher operating costs are also slowing milk yields as more expensive feed is cut. EU producers are feeling the same pain in costs but with already lower cow numbers.

NZ’s spring milk output has slowed with wet weather but should improve as the forecast warmer and drier pattern sticks, although cost pressures may also limit expansion.

Higher prices across the commodity spectrum will bring more caution in some consumer markets. Retail prices across all food categories will be pushed higher in coming months with the strong inflationary pressure from most inputs including energy, fuel, labour and packaging. Dairy prices will not stand out in that surge.