Bright spots

A sharp bounce in the latest Global Dairy Trade auction offered a ray of hope for New Zealand’s dairy sector, but it is too early to draw any conclusions for this season’s milk price payout. In the past week, we also published our latest thoughts on how far residential construction in Auckland can realistically ramp up – we think by about 30%.

The biggest news in what was a very quiet week in New Zealand markets was a sharp bounce in wholesale dairy prices at the latest GlobalDairyTrade auction. Whole milk powder (WMP) prices rose 19.1% to $1,856/MT, even more than futures markets had predicted, and futures markets are expecting another lift at the next auction on 1 September.

We are cautious about reading too much into one auction. For one thing, there’s the vexing question of how much Fonterra’s auction volume reduction and changes in production composition contributed to the result. And while the bounce was large, it still leaves prices 39% below where they were in March. Our forecast for a $3.70/kg farm gate milk price for the current season assumes a further lift in WMP prices, to well above $2,000/MT by season end. But there’s no denying that this was a positive auction result, and we will be watching how the next few auctions play out with great interest.

While New Zealand’s dairy industry is sorely in need of further good news, other parts of the economy are looking brighter. On Tuesday we published an in-depth dive into one particularly notable example – Auckland residential construction1. Our work concludes that there is sufficient pent-up demand in Auckland for 10,800 new dwellings a year over the next eight years, an increase of 30% on current levels.