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ASB Farmshed Economics Report: Dairy prices reality check

18 July 2014

ASB Farmshed Economics Report: Dairy prices get a reality check

• Rapid dairy price fall proves surprising
• Meat markets’ good health continues
• NZD approaches record high

This week’s slide in dairy prices was a surprise and has emphasised just how exceptional the recent season really was, according to the latest ASB Farmshed Economics Report.

"Ten of the last twelve dairy auctions have now recorded overall price falls, with prices down by around a third compared to the same time a year ago,” says ASB Rural Economist Nathan Penny. “An exceptional production season in New Zealand and strong production seasons globally, as well as high dairy stocks in China, have combined to push milk prices much lower than we expected.

“We have revised our forecast down and are now expecting a milk price for the 2014/15 season of $6.20/kg of milk solids. However, if the current trends of a soft prices and a strong NZ dollar continue, there is a possibility that we could be heading towards a price of below $6.00/kg.”

Conversely, the outlook is more optimistic for lamb and beef markets with lamb prices rising 9 percent over the last season and beef prices over the last month averaging 5 percent higher than the same time a year ago.

“While lamb markets take a breather over the Northern summer, we expect lamb price increases kick back into gear as we get closer to Christmas.”

Also over the last month, the NZ dollar got within striking distance of its record high against the US dollar, despite the overall weakening in export prices.

“Support for the NZ dollar from New Zealand’s relatively optimistic economic and interest rate outlook has dominated the impact from the recent fall in export prices. And with the Reserve Bank likely to raise the OCR again later this month, for now, we expect the NZ dollar to remain stubbornly high,” concludes Mr Penny.

Click here for the full report.

About Farmshed Economics
Farmshed Economics is a monthly report that gives ASB’s economic take on recent rural developments and includes our outlook for rural commodities and the relevant financial markets. The full report is attached and is available online.

Each quarterly Farmshed Economics will have a special feature on a relevant topic.

If you would like to receive ASB updates and reports by email: https://reports.asb.co.nz/register/index.html

ENDS

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