Although dairy prices are slipping, they may be the only food item that is. Guy Trafford reports that a flood of big price increases are about to hit the market after suppliers find they can't absorb them anymore

The see-saw that drives the Global Dairy Trade action has definitely continued being stuck in the mud and if anything has gone in a bit deeper at this latest sale. With the weighted average down -4.6% on the previous sale.

• Butter index down 2.6%, average price US$4,851/MT
• Ched index down 3.9%, average price US$4,769/MT
• SMP index down 6.9%, average price US$3,250/MT
• WMP index down 4.4%, average price US$3,421/MT

After hitting record highs earlier this year the price is now the lowest since January 2021. Given that consumer prices for many if not most foods are reaching record highs the downward trend is bucking what is happening locally.

Much of the reversal of the dairy prices appears to be due China still struggling to break out of its self-imposed covid shackles. Due to the current attitude being reinforced at China’s Communist Party Congress this week it appears that the reduced demand may continue for some time yet. Westpac has come out acknowledging that there are “now downside risks to our milk price forecast of $9.25/kg”. It’s too early yet for dairy farmers to lose sleep however if the trend continues beyond Christmas we can expect Fonterra to start chipping away at their forecasts.

The only bright light is the ongoing commentary that has world milk production down which should eventually lead to a price recovery.

Domestically we had the release of the inflation rate for this year’s 3rd quarter being at 2.2%. It appeared to surprise some economic commentators. They obviously haven’t been the ones doing the grocery shopping.

For most people they have been seeing prices going up on an almost weekly basis.

Most suppliers to supermarkets and other retailers have tried to contain price increases and pass them on as a last resort. Given the low rate of inflation prior to this year persisting for some time many have been out of practice of doing regular adjustments. Unfortunately, not so now. So, a lag in price increases which had appeared in some products is now in catch-up mode. A snippet from a notification from our egg supplier is likely to be reflected around the country.

“We’ve worked hard to maintain constant prices however we continue to experience several cost increases from our suppliers which are now beyond our control.

• The biggest input for our operation is feed for our hens. Feed costs from our supplier continues to increase another 10% increase in addition to the 32% increase experienced earlier this year. The cost of raw materials and proteins for feed continue to rise globally. We have been notified by our feed supplier that we can expect another review in the first quarter of 2023.

• Moulded fibre packaging increased 19%, due to the cost of raw materials, electricity, gas, and freight increasing.

From the 1 November 2022 we will be implementing a 23% increase per tray for all grade sizes and dozens cartons”.

The costs these folk have carried will also be being incurred by pig farmers. It will also be being felt overseas where much (most) of our pork comes from so bacon lovers cannot expect too much reprieve from imported goods. If the prices haven’t gone up dramatically yet it can only be a matter of time. Bacon and eggs may become a discretionary expense at this rate.

I was also talking to a grain rep who said despite the high prices being paid they have farmers nervous about sowing crops due to the high costs incurred from diesel and fertiliser among other things and not knowing yet what prices will be like at harvest. 2023 contracts for wheat and barley appear to be in the $555 -$565 and $535 -$540 range respectively although I have heard of figures around $700 plus being paid for grain recently.

Given the high costs to grow it is probably at this level where it needs to be to provide farmers with some security when sowing. It may be that grains will be in short supply come next harvest due to reduced area compounded by, if the Australian experience is repeated, lower yields due to reduced inputs (i.e. fertiliser).

Sorce: Ruralco. Grain report.

The uncertainty that grew out of the pandemic appears to have some distance to run yet and there appear to be more downsides than up at the moment.