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Two steps forward, one step back

Key highlights

Dairy prices were a touch lower overnight.
As buyers remain yet to be convinced of tightening global supply.
However, we expect more convincing (i.e. weak) production data to lift dairy prices through the middle of 2016.

Report prepared by:

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

At this early stage of the dairy price recovery, it’s very much a case of two steps forward, one step back. For example, the auction price fall overnight followed the two auction price rises over April.

The price recovery is predicated on a global production growth weakening, but at this juncture dairy buyers are not convinced this supply correction is happening. Indeed, recent production data, particularly out of the EU, have been unconvincing on this front.

However, we anticipate that this picture will change. Through the middle of 2016, monthly EU production data will slow towards zero on an annual change basis – changes which we foreshadowed in a report a month ago.

However, Fonterra’s opening 2016/17 season milk price forecast (due later this month) will precede these data. As a result, we expect Fonterra to set its opening forecast near $5.00/kg.

But if production growth data are confirmed weak in later months as we suspect, prices will recover during the season. On this basis, we expect the milk price will ultimately end the 2016/17 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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