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China sneezes, dairy markets catch a cold

Key highlights

Dairy prices were down a touch overnight.
As Chinese growth and sharemarket concerns spill over into dairy markets.
As a result, we trim our milk price forecast by 50 cents to $4.10/kg.
 

Report prepared by:

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


Summary:

The Chinese economy is in a sticky patch.  Chinese GDP growth ended 2015 at its lowest pace in 25 years.  In addition, the Chinese sharemarket was at one stage this month 15% lower than it ended 2015.

And with China the largest dairy importer, dairy markets soon reflect any Chinese weakness.  The two auctions this year have seen prices fall circa 5%.  With this softness coming late in the season, we’ve trimmed our milk price forecast by 50 cents to $4.10/kg.

However, we are still positive on dairy’s long-term prospects.  We expect the current Chinese concerns will eventually settle.  Moreover, Chinese growth will continue transitioning away from industrial sectors to services over coming years.  Such a move should support higher household spending, including on food.  As a result, we stick with our $6.50/kg forecast for next season and our positive long-run dairy view.     
 

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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