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Kiwi struggles after latest declines in dairy auction - ANZ

FXStreet (Bali) - ANZ reviews the latest declines in the GDT-WTI price index, down 6% in the last auction, which added further pressure to the New Zealand Dollar.

Key Quotes

"The not so good news overnight was another drop in dairy prices. The GDT-TWI registered a 6% drop, with declines across all products. The market appears to be struggling to digest the seasonal lift in New Zealand supply and the recent Russian sanctions on EU dairy exports looks to be flowing through in full force."

"The effect of the Russian bans is showing up in skim-milk powder, which last night dropped a further 9.5% and is now back 26% since sanctions were announced. In times of surplus milk, Europe gravitates toward SMP (and butter) production due to a longer shelf life compared with other products and government support programs."

"So despite European supply now heading into the seasonally lower period and the European Commission announcing last week they will open Private Storage Aid until the end of the year the market seems to be anticipating high supplies. Dairy farms will need to budget accordingly with a material gap between current spot prices and Fonterra’s current $6/kg MS forecast. We would suggest toward the bottom of our current forecast band of mid-to-high $5’s/kg MS. But even this looks optimistic given last night’s results."

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