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NZD: Persistent weakness in milk powder prices - ANZ

FXStreet (Bali) - According to ANZ, NZ Dairy prices fell despite being the peak sales period, adding that it should weigh heavily on the outlook, at least, until the middle of next year.

Key Quotes

"Dairy farmers look set to receive an unwanted Christmas present, with last night’s GlobalDairyTrade auction all but confirming a further cut to the farm-gate price is on its way. Milk powder prices fell 5-6%, with weakness evident across all contract periods. While some of the other products showed a bit more promise, the persistent weakness in milk powder prices has cemented farm-gate prices in the low $4/kg MS for the past four auctions."

"Given that this is the peak sales period this will weigh heavily on the outlook for the season. We believe a stronger turnaround won’t be forthcoming until the middle of next year for several reasons. Farm-gate prices have not adjusted materially lower in Europe and the US as yet, meaning suppliers are not receiving the signal to cut supply; lower grain prices are also helping Northern Hemisphere margins; Russian sanctions are continuing to rattle the market as evidenced by the one-way traffic for skim milk powder prices; demand in some key markets remains lackluster; and we’ve seen good seasonal conditions in New Zealand and Australia so far. Given the required run rate and the view of a later recovery our current forecast is for a $4.85/kg MS milk price in 2014/15."

"That means the December board meeting could be a doozy again this year. Last year there was a dramatic cut to the dividend and hike in milk price. The opposite could well occur this year, especially with some GDT product recently being sold via other channels for an extra premium and the persistent weakness in milk powder prices versus non-reference products. Not that the share price has been jumping for joy, but something worth watching."

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