NZ dairy prices: Lower for longer – ANZ

By FXStreet Research Team at ANZ, have revised their milk price forecast to $3.95/kg MS for 2015/16 and at this early stage $5.00/kg MS for 2016/17 (previously $4.25 and $5.50-5.75/kg/MS respectively).

Key Quotes

“This means for the average Fonterra farmer that is fully share backed cashflow looks like $3.81/kg MS in 2015/16 and $4.89/kg MS in 2016/17. Our estimates suggest a cumulative loss of around $1.50/kg MS over the two seasons if these forecasts become reality, or further cost efficiencies can’t be found over coming months.

Price action is poor and European supply dynamics are very bearish at present. There simply appears too much supply for the market to handle despite some encouraging demand signals and the likes of China’s import requirements having improved.

Two important structural shifts in the form of increased European supply and a lower cost of production are dominating. Both these factors are expected to continue to supress prices and delay expectations for a rebound.

USD dairy prices are weaker and the NZD is more elevated than what we had previously assumed. As such, it’s difficult to maintain a mid-$5/kg MS forecast for 2016/17.

The economic knock-on to the dairy sector and broader economy will be substantial. Lower dairy prices …read more

Source:: FX Street