Sentiment has been boosted by the news that Fonterra will lower the volumes of milk powder it makes available at its Global Dairy Trade auctions over the next year.
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The Commerce Commission today released its draft report on Fonterra’s base milk price calculation for the 2014/15 dairy season.
Fonterra’s market share in the South Island has slipped beneath the 80 per cent threshold specified in its enabling legislation, the Dairy Industry Restructuring Act (DIRA), the Minister for Primary Industries, Nathan Guy said.
Rabobank says dairy prices are set to rise as milk price reductions in China start to choke off domestic production growth, lower New Zealand production leads to a supply-side adjustment in export regions, the collapse in worldwide commodity prices reduces supply growth from the US and EU, and as accelerated dairy consumption growth depletes accumulated stocks.
Products on offer at the GlobalDairyTrade auction include whole-milk powder, skim-milk powder, butter, cheese and anhydrous milk fat.
ANZ’s forecast is for $3.50.
The company was also to shift volumes away from base whole milk powder to other products such as value-added ingredients, consumer and food service products.
It has since Fonterra slashed its forecast for the current season to NZ$3.85 per kgMS to account for the “imbalance” in supply and demand.
Ferguson said crucially three key factors were in dairying’s favour for a recovery. “All the releases this week are expected to support September “lift-off”.
“Markets have begun to bid prices higher on the likelihood that New Zealand production will fall this season compared to last”.
“Why so? For all the (previous) reasons, however also because the economic impact of the dairy price fall is yet to be felt”. “We are living in efficient markets and the NZX futures were telling you that this GDT auction was going to be a pretty decent bounce and markets have priced that in to kiwi over the beginning of this week”, said ANZ Bank New Zealand senior FX strategist Sam Tuck.
The New Zealand dollar was little changed as markets await the release of the US Federal Reserve’s minutes on Wednesday for a clue as to whether US interest rates will rise next month.
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Fonterra this month dropped its forecast milk payout to New Zealand farmers to the lowest in at least 10 years after a global glut and weak demand from China drove global dairy prices to a 12-year low.
