‘High dairy production levels in New Zealand will take time to be absorbed’

Dairy prices in New Zealand are expected to remain weak for the coming months, before beginning to ‘recover in earnest’ later in 2015.

New Zealand bank ASB has said that the dairy season there ended on a production high, but dairy markets will need time to absorb the extra New Zealand product from the better-than-expected end to the New Zealand production season.

It says that it now expects nationwide dairy production to have ended the season 3% higher than the 2013/14 season – its previous forecast was for a 2% lift.

Also, during the height of drought it had forecast the season’s production level to be on par with 2013/14. The better-than-expected end to the season means dairy markets will need a while longer to clear the extra milk. Until this happens dairy prices are likely to remain weak, it says.

But, next season, the dairy production clock resets and the bank says New Zealand is likely to see more modest production growth as farmers respond to the low farmgate milk price.

Looking to the future, it predicts that dairy prices are going to be low for a while longer.

Global Dairy Trade

ASB says that the Global Dairy Trade’s sixth consecutive auction price fall was broad-based, with all seven products it monitors recording falls.

Overall prices continue to be at their lowest since mid-2009, it says, and sit nearly 38% below a year ago.

Future

It goes on to say that it will stick with its milk price forecast at $5.70/kg for the new 2015/16 season. While this auction result adds some downside risk to this forecast, the recent fall in the New Zealand dollar balances this risk.

All up, dairy markets will need time to absorb the extra New Zealand product from the better-than-expected end to the New Zealand production season, it says.

As a result, it expects dairy prices to remain weak for another two to three months, before beginning to recover in earnest later in 2015.

Please be considerate of others when commenting. All comments posted are subject to our commenting policy. Comments violating this policy will be removed without notice.