Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
While Westpac has upgraded its forecast to $6.50/kgMS, slightly ahead of Fonterra’s estimate, it continues to caution against extrapolating recent trends too far into 2018.
“Our view remains that growth amongst NZ’s key trading partners is likely to slow this year, led by China.
“Chinese policymakers are poised to follow through with moves to rebalance their economy, reduce the risks generated by rapid credit expansion and put the economy on a more sustainable growth path.
“And while the consumer sector isn’t the focus for Chinese policymakers, they are unlikely to escape a period of slower growth completely unscathed.”
ASB’s senior rural economist Nathan Penny observed that NZ weather’s wild ride continued with storms and flooding in some regions in January and February.
“On the production side, we expect the improved weather will lead to production growth of 1% compared to last season. That said, there will be wide variations across the country given the varying extent of storms, drought and rainfall.”
Penny says they expect some of this price strength will be temporary. In particular, weather to date in 2018 has improved, with most regions getting substantial rain.
“So production is likely to improve later in the season.”
