Westpac Institutional Bank Team
Westpac Institutional Bank
The divisions running through New Zealand’s economy are deepening, with a second poor dairy season now looking likely, while Auckland’s housing market pushes further into the stratosphere. However the overall economic outlook remains solid.
A further fall in global dairy prices last week has prompted us to revise down our expectations for Fonterra’s season milk price. We’ve adopted Fonterra’s $4.70/kg forecast for this season, and now expect a milk price of $5.70/kg for 2015/16, slightly below the average of about $6 for the last decade.
The renewed weakness in global dairy prices has to some extent been due to New Zealand’s own improving weather conditions. Fonterra’s latest monthly production update has confirmed that conditions have improved for the dairy industry as a whole (the North Island has fared rather better than the South Island). Indeed, with only two relatively low-production months left in the current season, Fonterra’s milk collection is now up 1.1% on 2013/14 – a much better outcome than was expected at the start of the year.
Even so, two consecutive seasons of a below-average farm gate milk price are clearly bad news for New Zealand’s largest export industry. The repercussions for spending, agricultural lending, and farm prices are potentially a lot more severe than we have seen to date.
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