Global trade war 'bad news for NZ'
A global trade war beckons, which is bad news for a small open economy like New Zealand, warns Mark Smith ASB senior economist.
At last week’s GlobalDairyTrade event butter achieved its eighth record auction high this year – up 1.2% to US$6026/tonne.
“We expect it might even go higher again, so that’s an amazing story,” Penny told Dairy News.
A global shortage developing for the last two years has been fuelled partly by studies debunking the myth that animal fats are bad for human health.
“That was followed by an article in The New York Times saying saturated fats are not bad for you, they are not linked to heart diseases, this is false,” he says.
“Once that article was published... the foodies in the US started to get on board with butter. It fitted with the wholefoods story quite well.
“Butter picked up in North America first, then places like McDonalds agreed and put butter back on McMuffins, for example. It started there and spread globally.
“There is a shortage in Europe, China’s imports of butter are surging and on the supermarkets shelves here also the range of butters has increased compared to five years ago.
“So it is really a worldwide phenomenon but as it is quite recent, supply has not been able to keep pace. It will take a little while for supply to pick up hence we think it can go higher over the next six months or so.”
Looking over a three-month period, overall auction prices continue their holding pattern, Penny says. Whole milk powder (WMP) prices have lifted a modest 2.7% over this period, while overall prices have fallen a similarly modest 1%.
Overall dairy auction prices were largely unchanged last week (up 0.9%). WMP was also effectively flat (up 0.6%) in line with expectations. But key New Zealand dairying regions are very wet and production is stalling, he says.
“It is probably not too late for fine weather to turn things around and get a decent peak in the spring but if we get more wet weather in the next few weeks we will have a hole in production.
“If that eventuates we can see prices lifting over the next couple of months. That would mean we would revise our current milk price forecast of $6.75/kgMS to over $7/kgMS if we don’t get any better weather.”
June and July, with winter milk factored out, were not particularly strong, he says. Not only in Waikato but even in some places in Canterbury, farmers are saying they are running behind last season.
“We will get some official numbers down the track but those anecdotes are pretty widespread,” he says. “So I guess we’re looking to the heavens for the next few weeks to see where things head.”
