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Drought déjà vu


13 February 2015


Drought déjà vu

Dairy production plunging at the same time prices are spiking.

Lamb prices soft on drought impact.

Reserve Bank signals OCR could go up or down.

Stronger dairy prices in the most recent dairy action are a double-edged sword, according the latest ASB Farmshed Economics Report.

“Strengthening dairy prices in the 2 February dairy auction have given upward momentum to prices,” says ASB’s Rural Economist Nathan Penny. “However, farmers still have to navigate this summer’s drought and potential falls in production. But if farmers can manage through this tough drought and low milk price combo, we expect a rebound in the milk price for the 2015/16 season to around $6.00/kg.”

In contrast to dairy, lamb prices are beginning to slide downwards.

“The drought has seen more lambs slaughtered than normal for this time of the season and this combined with soft overseas demand, has seen lamb prices fall over January. However, we see these factors as temporary and prices should firm towards the middle of the year.”

The Reserve’s Bank move to more neutral ground and other factors like the drought and a weak global economy should combine to keep downward pressure on the NZD over the first half of 2015.

“The NZD at one stage over January got as low as USD 0.72. While it has recovered a couple of cents, it should remain under pressure. We expect NZD/USD to ease to around 0.67 by mid -2015, which, if it does, would help support otherwise patchy rural incomes.”

ENDS

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