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The NZ milk hole

Key highlights

Dairy prices scaled back for a second auction in a row overnight.
With markets now downplaying NZ production falls in light of global production holding up elsewhere.
However, we think the NZ export hole is too large to fill and thus the dairy price strength will return.

Report prepared by:

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


With NZ production falling hard, dairy markets are turning to other producers to fill the gap.  As EU, US and Australian production holds up relatively better, markets anticipate other producers can offset NZ declines.

We think this market assumption is misplaced - lost NZ exports are too big to cover.  NZ production has not fallen this hard since 1999.  Moreover, NZ is the largest dairy exporter, and in particular exports the lion’s share of WMP.  The EU and others cannot fill the NZ hole.

As a result, we expect dairy prices to regain recent losses and for prices to move higher over the course of the 2015/16 season.  Consequently, we stick with our milk price forecast of $5.00/kg.

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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