Global dairy prices strengthen

Global dairy prices strengthen in latest auction

Dairy
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Global dairy prices strengthened last week and pundits are forecasting potential further rises on the back of drier conditions in New Zealand.

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Global dairy prices strengthened last week and pundits are forecasting potential further rises on the back of drier conditions in New Zealand.

The Global Dairy Trade auction was up 1.7 per cent on Tuesday, with rises in six of the seven commodity groups.

Anhydrous milk fat was the only commodity to record a fall - down 2.6pc.

The rise in this auction and the one at the beginning of January have wiped out the losses in December and have put upward pressure on the forecast 2019-20 New Zealand farmgate price.

Westpac senior economist Michael Gordon said the bank had revised up its forecast from $NZ7.10 a kilogram of milk solids to $NZ7.40/kg MS.

"Stronger than expected dairy prices so far this season have boosted the outlook for this year's payout, and dry weather is creating a risk that prices could go even higher in the short term," he said.

"However, our forecast still allows for some easing in world prices over this year as China's economic growth slows and trade tensions remain high."

Mr Gordon said there was a risk that world prices could be squeezed higher in the near term, as dry weather restricted the global milk supply.

"That's especially the case for New Zealand," he said.

"A lack of rain over the summer period has seen a rapid drying-out across many regions, which means that milk production could fall short over the tail end of the season."

Mr Gordon said the impact of the Australian bushfires on global supplies was still not clear.

"The Australian dairy industry has already been hit hard by drought in recent times - milk collections over 2019 were down 7pc on the previous year," he said.

ASB senior rural economist Nathan Penny said ASB maintained it $NZ7.50/kg MS forecast NZ milk price.

"Emerging dry weather could put further upward pressure on dairy prices," he said.

Prices had now recovered from the shock falls in December - which ASB put down to a knee-jerk reaction to Fonterra's announcement of a lift in planned auction volumes.

"Looking over February and March, emerging dry weather could put further upward pressure on prices," he said.

"However, it's still early days in the NZ summer and we maintain our 2019/20 production growth forecast at 0pc.

"In other words, we are noting the drought risks at this stage. Nonetheless, watch this space."

The next GDT auction is scheduled for February 4.

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