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Back to basics

Key highlights

Dairy auction prices were largely unchanged overnight.
From here (and post-Brexit), market focus returns to tightening global supply.
With tightening supply in mind, the auction result tentatively hints at a future lift in prices.

Report prepared by:

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

It’s back to basic for dairy markets and prices. By basics we mean dairy market fundamentals. Moreover, Brexit has proved a temporary distraction, with dairy prices largely unchanged in two auctions since the Brexit vote.

Indeed over this season, our view is that tightening global dairy supply will be the key market driver. Accordingly, tighter dairy supply should contribute to higher global prices.

Recent production data support this view. Fonterra’s June milk collections were 10% down on June 2015. Meanwhile, the trend in EU production is down, reflecting the reality of very low milk prices and farm losses.

D-day is approaching, however, for our 2016/17 milk price forecast. In particular, auction volumes on offer peak for the season over the next three months or so.

For now though, we stick with our $6.00/kg forecast, but note weak production needs to translate into material price rises over coming months for this forecast to hold.

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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