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First leg of the trifecta

Key highlights

Auction prices bounced higher again overnight, with the lift largely in line with expectations.
Sentiment has turned and further significant price lifts are now effectively contingent on weaker NZ production.
We stick with $4.50/kg for this season, but note the dairy price recovery’s long road ahead.

Report prepared by:

Nathan Penny, ASB Rural Economist
Phone: +64 9 448 8778
Email: nathan.penny@asb.co.nz

The first leg of the dairy price trifecta is nearing completion.  Namely, dairy market sentiment has turned.  And prices have mostly regained the losses incurred over July and August.

Attention now squarely turns to the second more difficult leg of dairy price trifecta.  Namely, a drop or material slowing in NZ dairy supply.

At this stage, we expect production to fall.  Farmers have culled aggressively so far this year, supplementary feed is uneconomic for most, and there is high risk that el Niño causes a drought this summer.  On this basis, we forecast this season’s production to fall 1% compared to last season.

But over the next few months, we expect price increases to slow.  Moreover, markets are yet to be convinced that NZ production is slowing.  They prefer cold hard data to forecasts, and data to confirm weak production may not be available for several months.  This fact highlights that there is still a long road ahead in the dairy price recovery.

Read the full PDF Report

Important Disclaimer - The views expressed herein are those of the authors and are based on information believed but not warranted to be correct. Any views or information, whilst given in good faith, are not necessarily the views of ASB Bank Limited and are given with an express disclaimer of responsibility and no right of action shall arise against any of the authors, ASB Bank Limited or its employees either directly or indirectly out of any views, advice or information.
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