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Key highlights

Dairy prices lifted a touch overnight, but well below expectations heading in to the auction.
We continue to expect dairy prices to lift over 2016 as NZ production falls.
All up, we stick with our $4.60/kg and $6.50/kg milk price forecasts for 2015/16 and 2016/17, respectively.
 

Report prepared by:

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


Summary:

2015 has been a year of weak dairy prices.  Oversupply has been the dominant theme, not helped by sluggish global demand that weakened as the year progressed.

Heading into 2016, the oversupply of dairy products that matter to NZ will correct.  NZ production is weak and will weaken further in the second half of the season.  We expect this production weakness to filter through to higher prices over 2016, particularly for WMP.

But at the same time, demand is likely to remain sluggish at least in early 2016.  The Chinese economy is transitioning to lower (albeit more sustainable) growth and other emerging economies as well as oil producers are also feeling the pinch.  This soft demand will keep a lid on overall price rises.

All up we expect prices to lift back to around their long-run average levels over 2016 – however, we are unlikely to see prices back near the record 2013 levels over the next few years.  On this basis, we stick with our $4.60/kg and $6.50/kg milk price forecasts for 2015/16 and 2016/17, respectively.
 

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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