Fonterra’s $3.2b capital return to farmers set to boost rural incomes and NZ economy
According to ASB, Fonterra's plan to sell it's Anchor and Mainlands brands could inject $4.5 billion in additional spending into the economy.
In the four previous auctions the price index lifted at least 60% overall and whole milk powder over 80%.
Wilson expects prices to keep firming over the next six months, to about US$3000 to US$3500 per tonne.
The WMP index was down 4.6% last week to an average price of US$2694/MT.
"While it is disappointing to see the drop, demand is soft in some key economies; we need demand to go up," Wilson says.
ASB rural economist Nathan Penny says it looks as though markets have largely factored in that production is falling here in New Zealand.
"They have taken that information on board and now it's more about seasonal factors and how things develop from here.
"Last week's decline is likely to be due to the markets getting a bit ahead of themselves and now they are taking stock.
"From here, as we continue to see production falling compared to last year, we expect that to be reflected in gradually rising prices.
"As we get closer to summer and the risk of El Nino becomes more concrete that is also likely to support prices or push prices upwards. But the big move has now happened and it is more gradual from here."
He says the NZ production fall is the main driver and from here it will continue to drive prices but just at a more modest rate.
"Growth is slowing in the rest of the world but they are not doing the heavy lifting New Zealand is."
ASB is still forecasting a $5/kgMS milk price payout for 2015-16. – Pam Tipa
