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Catching breath

Key highlights

After four bumper auctions, dairy prices fell overnight.
With little fresh news to digest, markets have taken stock of the massive price lifts to date.
We interpret that this pause signals a more gradual pace of price rises from here, in line with our $5.00/kg milk price forecast.
 

Report prepared by:

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


Summary:

Dairy markets are moving back into balance.  With the market oversupplied for more than a year, NZ farmers have reined in production to better reflect the current state of demand.   

Dairy prices now reflect this current balance.  Overall prices lifted over 60% and WMP prices over 80% in the four prior auctions.  However, supply and prices still have more work to do.

Today’s result is a change down the gears – we expect prices will continue to lift over the remainder of the season, but at a more gradual pace.

For now, NZ production is doing the heavy lifting in terms of supporting prices.  Other suppliers globally are also likely to contribute, albeit belatedly and modestly, to slower supply growth as farmgate prices remain generally low, particularly in the EU.  Meanwhile, global demand growth remains modest; hence prices are likely to only climb back to average levels over the season.

All up, this pause and change of pace in price gains is consistent with our 2015/16 milk price forecast of $5.00/kg.

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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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