Brighter prospects of higher Victorian farm gate milk prices, due to a downturn in global milk supply, may be dampened by a sharp jump in production costs, according to analysts.

Dairy Australian senior analyst John Droppert said there had been a drop in New Zealand production and a cold, and wet spring, in the northern hemisphere.

“The Europeans went through quite a bit of fodder, keeping cows indoors, and now they are coming through a hot summer, where they need fodder as well,” Mr Droppert said.

Whilst milk volumes were not yet down, the heat could affect fat and protein levels.

“Fodder shortages are going to bite, later in the season, and milk volumes will drop as heat stress catches up,” Mr Droppert said.

Mr Droppert said buyers would be looking around to ensure supply.

“They don’t wait until there is no product before they start to worry about it,” he said.

“If they see those dry conditions, and those numbers coming in, they start to cover themselves.”

Australian manufacturers were trying to maintain the premium for Australian product and it made it easier to hold out for a better sale when buyers were keen.

Rabobank’s Michael Harvey said expectations for the new season in New Zealand were good, with healthy margins for dairyfarmers on the back of milk price signals.

While seasonal conditions in autumn had been kind, the next few weeks would be critical.

Mycoplasma bovis wouldn’t significantly impact milk production this season.

“Infected farmers have the option to milk through the peak of the season, which many have indicated to do, and then cull their herds in early 2019,” he said.

He said global factors pointed to an upswing in prices.

“There is a growing likelihood global supply, in the coming months, could be impacted negatively, which provides an upside to commodity prices,” Mr Harvey said.

“We haven’t seen that realised in terms of higher export returns, just yet, it’s a key watch, right now.

“There is margin pressure because input costs have started to rise, but there is a chance we will see a bit of rally in markets, if this weather takes to take a hold of global supply.”

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