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The big wet

Key highlights

Dairy auction prices lifted overnight, albeit by less than expected.
Indeed, it appears markets need more convincing that wet weather is weakening production.
From here, we expect choppy prices over coming auctions, before prices lift again over the rest of the season.
 

Report prepared by:

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


Rain is normally welcomed by farmers as manna from heaven. But recently we’ve seen a case of where sometimes you can have too much of a good thing. This spring has been wet, very wet, in the Waikato and other parts of the North Island.

This ‘big wet’ has slammed the brakes on the production in an area representing circa 40% of NZ’s production. For example, Fonterra has reported that October milk collections in the Waikato are running 10% behind this time last season. Moreover, the likelihood that this production can be made up later this season is low.

For us, this development is the confirmation that NZ production will fall hard this season. We have forecast a 5% nationwide decline compared to last season. And on this basis, we expect dairy prices to continue their rise over the season.

Dairy markets, however, need a little more convincing. While markets appreciate that a drought can stunt production, wet weather hurting production is a harder sell. Accordingly, we expect markets will wait for data to confirm weak production before bidding prices higher again. All up, 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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