Rural Bank is forecasting milk production increases for the remainder of 2022 as an extended La Niña has replenished feed supplies and water storages, while herd numbers are expected to stabilise or slightly decrease. While milk production is being curtailed by competition for land, high beef prices, rising input costs and labour shortages, according to Rural Bank’s Agricultural Mid-Year Outlook, production will increase 0.5%in 2022/23.

Rural Bank expects domestic demand to remain steady through the second half of 2022. Cafes and restaurants have supported dairy demand over the six months to June, with supermarkets have seen more stable consumer behaviour. As milk and dairy are diet staples, Rural Bank does not expect a shift to substitute products as inflationary pressures hit consumers, although trading down to non-branded altenatives may occur.

The combination of tight local and global  milk and robust demand will continue to drive dairy prices higher until global supplies recover later in 2022. While margins will be squeezed by increased input cost the Outlook notes high levels of confidence with 68% of farmers feeling confident about the remainder of 2022, according to a Dairy Australia survey.

Meanwhile, in its Outlook Rural Bank noted that farmland values grew rapidly during 2021 with the national median price increasing 20% to $7,087/ha. Increased values reflected high commodity prices, favourable seasonal conditionsand low interest rates. An increasingly challenging operating environment driver by increased input costs, supply chain challenges and interest rate rises may cool market sentiment over the next six months.