Tuesday, 21 July 2015 16:00

Oversupply still the main cause of price dip

Written by Rural News Group

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ASB rural economist Nathan Penny.

Oversupply is still the underlying weakness affecting dairy prices, says ASB rural economist Nathan Penny.

While declines at the last two auctions relate to China stockmarket concerns and to a lesser degree Greece, the below US$2000 for WMP is a supply issue.

Prices were at very low levels “where it is very cheap for buyers and very difficult for producers like New Zealand farmers so prices can’t stay at this level for very long.”

He says it is too early in the season but indications of flat or falling production are needed for prices to rise.

“We are moving to the stage of the season where volumes increase. At this stage if you look at the DCANZ data the [last] season was up 3.6% on the previous season – a very healthy number considering we had a drought and the previous season had a 10% lift on the one prior to that.

“That’s a lot of milk and that’s going to take a while to clear.

“We need more indication with the new season’s production that either the growth will be much lower or of flat or falling growth before markets can see the prospects of supply tightening.

“Not until mid-October will we get a feel for how the new season will go. At this stage we think it will be flat on last year but markets are well supplied and they want to see firmer indications of flat production or a fall before they start to put the price up.”

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