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Six dollars on track

Key highlights

Dairy auction prices jumped overnight by more than expected.
With wet weather slamming the brakes on NZ dairy production.
This result reconfirms our $6.00/kg milk price forecast, and also adds some upside risk.

Report prepared by:

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

Dairy markets didn’t take that much convincing after all. We had thought that dairy buyers would take their time in bidding prices higher following the very wet North Island weather. Dry weather hurting milk supply was one thing, but wet? That, we thought, may take some convincing.

For our part, we were already convinced. And the lift in prices on the basis of rapidly falling NZ production was just a matter of time.

Indeed, the ‘big wet’ is a game-changer for this season’s production. For example, on the back of the wet weather, Fonterra lowered its milk collections forecast to 7% below last season (from a 3% fall previously). This is in line with our forecast drop of 5% across all suppliers (note Fonterra has been losing market share).

The ‘big wet’ has also sped up the dairy price correction, meaning we are ahead of where we thought prices would be at this stage of the season. In fact, prices have both lifted earlier and higher than we anticipated. As a result, if NZ production is indeed as weak as we anticipate, then prices are likely to stabilise at current levels, if not lift further. In this respect, we see an increasing probability that this season’s milk price lifts above our current $6.00/kg forecast.

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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