We’re unlikely to see dairy prices back near the record 2013 levels over the next few years, according to ASB Bank in New Zealand.
2015 has been a year of weak dairy prices, with oversupply the dominant theme, it states.
Heading into 2016, it expects the oversupply of key dairy products to correct.
And as a result, ASB expects prices to lift back to around long-run average levels over 2016 and on this basis, the bank is sticking with its $4.60/kg and $6.50/kg milk price forecasts for 2015/16 and 2016/17, respectively.
Whole milk powder (WMP) auction prices over 2015 have been 27% below the average level since the dairy auctions began, ASB states.
Looking back to the 2014/15 season, the bank said that production finished around 4% higher on top of the massive 10% lift the season prior.
Currently, New Zealand production is weak and ASB expects it to weaken further in the second half of the season.
In turn, it also expects this production weakness to filter through to higher prices over 2016, particularly for WMP.
But at the same time, demand is likely to remain sluggish at least in early 2016, according to the bank.
The Chinese economy is transitioning to lower (albeit more sustainable) growth and other dairy-importing economies are also feeling the pinch.
ASB expects that soft demand will keep a lid on overall price rises.
