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Six dollars

Key highlights

As we have long predicted, Fonterra lifted its 2016/17 milk price forecast by 75 cents to $6.00/kg.ut
In turn, this lift reflects the rapid global dairy supply correction as we also signalled.ut
Meanwhile, we see growing potential for the milk price to go beyond $6.00/kg.

Report prepared by:

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

As we have long predicted, Fonterra has today lifted its 2016/17 milk price from $5.25/kg to $6.00/kg.

The revision reflects the rapid about turn that has occurred global dairy supply over 2016. Dairy production is now falling heavily in NZ, the EU and Australia, with the US the only notable exception.

For us, this supply correction and subsequent price lift came as no surprise. With farmgate milk prices very low, farmers had to respond and change behaviour – farm losses could not continue indefinitely. Moreover, the lifting of EU quotas, EU intervention, low oil prices, for example, were temporary distractions to the overarching story of low milk prices putting farmers under the pump.

In other words, the dairy commodity cycle trumped all. But the question now turns to how much further has cycle got to run?

On that front, the very wet recent weather in the North Island has the potential to send the milk price even higher. For now, though, we sit tight with our $6.00/kg forecast. And join in with NZ farmers’ collective sigh of relief.

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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