NZ: Dairy auction result disappointed - ANZ

Research Team at ANZ, notes that the last night’s NZ dairy auction result disappointed, but wasn’t surprising with buyers recently becoming more cautious.

Key Quotes

“Increasingly it looks like there will be a cooling off period as the Chinese FTA buying window closes and the market awaits further information on supply dynamics. Despite this we continue to believe the recent rally in prices has more durability than recent years. This due to milk supply actually contracting in all major export markets bar the US, very tight New Zealand inventory levels pushing demand onto GDT and recent demand at higher prices being more broad based than China alone.

We continue to hold a high-$/4kg MS milk price view for 2016/17. This is obviously below Fonterra ($5.25/kg MS), but in line with other dairy processors current forecasts ($4.60-$5.00/kg MS). After last night’s auction current market indicators have the milk price around the low-mid $5/kg MS mark. If recent prices, which look more durable than this time last year, can hold steady into year end this should be easily achievable. But until then we prefer to take a cautious approach.”