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Starting on a positive note

Key highlights

Dairy auction prices start new season on a positive note.
Butter and skim milk powders led the way, both recording double-digit gains.
However, temporary strength in NZ production saw key WMP prices decline.

Report prepared by:

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

This week’s auction headlines read well. The 3.4% overall price lift is the second-largest for the year. Moreover, four of the five last auctions have now recorded gains.

Scratching beneath the surface of the positive result, however, reveals some weakness. But nonetheless we find nothing substantial enough to change either the underlying picture or our long-held positive dairy view.

In particular, and in the context of wider price rise, the whole milk powder price fall raised an eyebrow or two. However, looking closely we surmise that this weakness is likely to prove temporary.

Stronger-than-expected NZ production over recent months is the likely culprit for the temporary WMP price weakness. But looking to the new season, the production outlook remains weak, reinforced by Fonterra’s low opening milk price forecast. Indeed, as June heralds the start of the new season, the strength at the close of last season will soon be forgotten.

All up, on the basis of falling production in NZ, Australia and Argentina as well as slowing production growth in the EU, we continue to expect dairy prices to lift over the course of this season.

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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