El Nino may lift future dairy prices: economist

An El Nino weather pattern expected to bring drought to parts of New Zealand could push dairy prices back up, Westpac bank says.

But in the meanwhile, the ASB has dropped its farmgate payout forecast to $4.60 per kilogram of milksolids, from $5. This brings it into line with Fonterra's present forecast figure.

World dairy prices fell 7.9 per cent at the GlobalDairyTrade auction on Wednesday.

Prices took a hit two weeks ago, dropping 7.4 per cent after a 3.1 per cent decline a fortnight earlier.

The average price at the latest auction slumped to US$2345 per metric tonne (FAS).

READ MORE:
* World dairy prices fall at auction
* Stockpiles tipped to keep dairy prices flat

Westpac senior economist Anne Boniface said the bank expected an El Nino weather pattern to bring drought conditions to parts of New Zealand over summer which would weigh on New Zealand milk production volumes and put upward pressure on prices later in the season.

However, a recent string of weak auction results and ongoing growth in milk production in other parts of the world needed to be factored into this season's payout forecast, Boniface said.

ASB economist Nathan Penny said prices would correct upwards before the end of the season, because a "large hole" was developing in global dairy exports.

"Although we expect prices to eventually end the season higher, these weak auctions have added up. As a result, we trim our 2015-16 milk price forecast by 40c to $4.60/kg," Penny said.
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New Zealand's major export whole milk powder fell 11 per cent, to an average price of US$2148.

There were 141 bidders trading 30,044 metric tonnes of dairy product.

By 7.20 Wednesday morning the New Zealand dollar had dropped to A90.85 cents against the aussie after closing on Tuesday at A91.48 cents.

It was also slightly down against the greenback trading at US64.67 cents.

Federated Farmers dairy spokesman Andrew Hoggard said news of the fall was disappointing, and he had hoped prices would be at least flat.

"It seems the rest of the world doesn't believe us when we say we've cut production," Hoggard said.

He was not optimistic that Fonterra would achieve its forecast payout of $4.60kg/MS, based on the futures market.

"The figure of US$3000 has been bandied about as the one that the whole milk price needs to reach in order to make that forecast price, but at present six months futures prices are not going above $2500. They are looking pretty weak," Hoggard said.

Meanwhile NZ First leader Winston Peters said at the end of September, the United States was sitting on over 105,000 tonnes of dry milk products, down 9.5 per cent on last year, but still up 9 per cent on 2013-14 – the last good payout season.

"The price spurt at the beginning of this season seems to have been buyers taking advantage of low prices to rebuild stocks ahead of El Nino.  Given the back half of the season is usually unkind pricewise, it is of major concern to rural New Zealand," Peters said.

Prime Minister John Key's "ham-fisted treatment" of Russia has cost farmers about $60 million in lost sales this year. Russia was a "real market" being avoided by Key, Peters said.

In response to the latest fall, AgriHQ has lowered its farmgate milk price to $4.27/kg MS.

Analyst Susan Kilsby agreed with Hoggard that, using the futures market as a guide, prices may not rise much more.

"At present buyers are generally well stocked and have ample supply options for dairy commodities. The drop in milk output from New Zealand in recent months has been matched threefold by the increase in production from Europe. Until global milk supplies drop further, prices are expected to remain soft," Kilsby said.

Resource :http://www.stuff.co.nz/business/farming/dairy/74122129/El-Nino-may-lift-future-dairy-prices-economist