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Gentlemen, restart your engines

Key highlights

Dairy markets are starting to wake up to rapidly tightening global supply.
Indeed, the supply correction in NZ and Australian supply is effectively here.
With this in mind, we expect dairy prices to build on this auction’s lift and to rise further over the rest of 2016.

Report prepared by:

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

Dairy markets are starting to wake up. Dairy buyers had gotten used to ample global milk supply, and had bid down prices as a result. However, that picture is changing, and it is changing fast.

NZ (and Australian) farmers are leading the way. For example, we estimate that the NZ dairy herd has shrunk an unprecedented 5% or 300,000 cows on top of the 3% fall last season. This heavy slaughter is irreversible and will translate into a downward correction in NZ supply.

The EU supply picture has also changed, although it remains a step behind that of its southern counterparts. For example, June UK production is down 9% on June 2015. But other producers such as the Netherlands and Ireland are hanging in there for now, despite very low milk prices. In aggregate, though, the EU milk tide has also turned.

As a result, the dairy price question is shifting. In our view, it’s no longer a question of will prices lift this season, but rather by how much and over what period.

On that front, we continue to hold the view that prices will lift by more and earlier than other analysts. In other words, we expect dairy prices to build on this auction’s lift and continue to rise over the remainder of 2016.

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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