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Time to reflect

Key highlights

Dairy auction prices fell overnight largely in line with expectations.
As dairy markets take a breather and reflect on August and September’s price surge.
From here, we expect prices to track sideways, before lifting again later in the season.

Report prepared by:

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

Dairy markets have gotten a little ahead of themselves. The auction price correction over August and September was rapid and large. And now, it also seems a touch overdone.

However, for the main part we expect this price correction will be sustained. In particular, a change in dairy fundamentals supports the correction – global dairy production has shifted lower, and prices needed to correct higher as a result.

On the production shift, we expect there is more to come (or less as this case may be). That said, it is still relatively early in the NZ season. Thus, dairy markets will want to see further evidence of continued production weakness before pushing prices higher. On that basis, we look to NZ spring data that supports or challenges our view that global production will weaken further over 2016.

With that in mind, we expect prices to largely track sideways from current levels, before lifting again later in the season. As a result, we continue to expect a finalised milk price of $6.00/kg for 2016/17.

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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