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One step at a time

Key highlights

Dairy prices stepped higher overnight.
The price moves are consistent with a recovery, albeit one that has a long way to run.
On this basis, we expect to see the milk price forecast start the 2016/17 season near $5.00/kg, before lifting to $6.00/kg by season end.

Report prepared by:

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

Dairy prices have taken a small step towards recovery. And while seasonal factors are in play, the developing trends are consistent with our view of what we expect to see over the new season.

Namely, we expect NZ farmers to continue to lead the production response to low milk prices. And as NZ production falls, we expect to see prices for NZ-dominated products to recover first.

Elsewhere globally, the response to low prices is slower, but in places like the EU the response is happening. When this slower response does kick in, we expect global prices to get a second wind from higher skim milk powder prices and milk fat prices.

On this basis, we expect Fonterra’s opening 2016/17 season milk price forecast (announced in late May) to be near $5.00/kg. But as prices rise further during the season, we expect the milk price will ultimately end the season at around $6.00/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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