Westpac Institutional Bank Team
Westpac Institutional Bank
Unsettling news continues to emerge from China, and from some of New Zealand’s key export industries. But we should not to lose sight of the bigger picture. Last week’s building consents data, and this week’s labour market data, will serve as useful reminders that New Zealand remains in the grip of a veritable boom in domestic demand.
Two weeks ago we discussed the sharp price declines at recent GlobalDairyTrade auctions, and revised our forecast of Fonterra’s farm gate milk price to $6.00 per kg of milk solids.
Last week Fonterra revised its own forecast to $6.00 per kg of milk solids. Although Fonterra’s forecast coincides with ours, the announcement may still have come as a shock to farmers. A drop from last season’s $8.40/kg milk price to $6.00 would amount to a reduction in the collective income of New Zealand dairy farmers of about $4.1bn, or 1.8% of GDP.
The final milk price for the season remains very uncertain, and hinges on how upcoming GlobalDairyTrade auctions evolve. All eyes will be focussed keenly on this week’s auction, which will take place early on Wednesday morning.
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