7 Sep 2016

Dairy prices rise but future remains uncertain

2:47 pm on 7 September 2016

While prices have risen in the Global Dairy Auction for the third time in a row, a former agribusiness professor says it could level off from here.

Cows in a paddock in the Hawke's Bay area

Photo: RNZ / Claire Eastham-Farrelly

The average price rose 7.7 percent to $US2920 a tonne and the whole-milk powder price rose 3.7 percent to $US2793 a tonne.

Prices were also strong this time last year, and then dropped throughout the season to a dismal payout of $3.90 a kilogram of milk solids.

Keith Woodford, a honorary professor of agri-food systems at Lincoln University, said the latest auction was positive - but there was still the usual uncertainty that came with commodity markets.

"It's really good news, but the buyers will start to think 'okay we don't need to rush in too much now', so I think it might stabilise in the next few weeks.

"If we look at the current season people are getting excited about what some of the payout numbers might be, but I'm saying 'hey it's still anywhere between four and six dollars, a lot of water to go under the bridge, a lot of uncertainty about production coming out of New Zealand'."

Mr Woodford said the best estimates were that the current big driver of the recent Global Dairy Trade increases was a belief in the international markets that New Zealand production was going to be down considerably this season.

That may or may not happen, Mr Woodford said.

"The numbers that we're seeing at the moment on New Zealand production are that parts of the North Island are down after a cold and wet winter. However, other parts of the North Island are doing okay.

"The big thing will be what happens in the second half of the season because with farmers moving away from supplementary feed there is a tendency for them to become more vulnerable to droughts."

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