Overall dairy prices at the Global Dairy Trade auction fell 7.9% this week for third consecutive auction fall.
Overall and Whole Milk Powder (WMP) prices have fallen 17% and 22%, respectively, over the last three auctions.
According to Nathan Penny Rural Economist with ASB bank, New Zealand production so far this season has been confirmed as weak and the outlook is for further weakness.
“We see the current prices as out of whack with dairy fundamentals.
“We do note that the market is factoring in some milk powder scarceness later in the season – prices of later-dated WMP contracts are around $300/MT higher than near-dated ones.
“While we agree with that pattern, the overall price level is still too low,” he said.
Penny said he continues to point out that the market assumption that other producers like the EU will pick up New Zealand’s slack is misplaced.
“Lost NZ exports are too big to cover,” he said.
As a result, Penny says once markets come to this realisation (most likely as stocks run down) prices, particularly for WMP, will correct higher. However, this correction may be a month or more away, he said.
In particular, Penny said he’ll be watching for any pick up in Chinese WMP imports for evidence of this correction is about to get underway.
Nonetheless at this juncture, the weak auctions start to add up.
“We are nearing the half way point in terms of auction volumes sold, with a little over 40% of WMP sold so far.
Penny says he continues to expect dairy prices to recover over 2016 and dairy’s overall prospects remain positive.
