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Dairy dodges Brexit bullet

Key highlights

Dairy auction prices were down only a touch overnight.
Highlighting that Brexit’s initial impact on dairy prices is likely to be modest and temporary.
However, recent temporary setbacks are increasing the downside risks to our 2016/17 milk price forecast.

Report prepared by:

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

Fundamentally, Brexit has not changed the dairy market outlook. And the modest fall at this auction reassures us that the initial Brexit fallout in terms of dairy prices is likely to be modest and temporary.

Specifically, our view relies on a supply response from global producers, and we don’t expect Brexit to reverse the fall in production here in NZ, Australia or in the EU.

Brexit also poses some medium-term risks to dairy prices. Sharply weaker economic growth in the EU could lead to a higher EU dairy surplus – this surplus would then be exported into our export markets, putting prices under further pressure.

Indeed, our milk price forecast assumes dairy prices rise over 2016. So if dairy buyers continue to sit on their hands and wait for the Brexit dust to settle over coming months, achieving our milk price forecast becomes increasingly difficult with each passing dairy auction. Similarly, any further temporary dairy price setbacks will have the same effect. For now though, we stick with our 2016/17 forecast, but highlight the growing downside risks.

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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