This was the third successive increase in prices and also the highest level for 28 months.
The New Zealand earthquake at the weekend will be an important short-term focus and is likely to have an impact on the dairy sector with short-term difficulties in transporting milk. There was no damage reported to Fonterra facilities in the area, which should prevent a sustained impact, although there will still be underlying doubts surrounding the domestic production outlook.
Although overall EU production held steady in October, there was a sharp decline in UK production and the EU output decline is likely to resume.
New Zealand output overall is likely to be restricted by poor weather conditions during the crucial spring growing season.
Overall global supply levels are likely to be relatively weak, which will tend to support prices, although there will be little scope for strong gains in prices unless there is an overall improvement in demand.
The Reserve Bank of New Zealand cut interest rates at last week’s policy meeting, but also switched to a neutral policy stance and, on current trends, is not expecting to cut interest rates further. There will, therefore, be reduced expectations that the auction data will have a direct impact on monetary policy, but a sustained increase in dairy prices would still have an important impact in boosting confidence and supporting income levels. Sustained increases in prices could increase the potential for a shift to a RBNZ tightening bias before mid-2017.
There was little reaction in the New Zealand dollar with NZD/USD pinned near daily lows around 0.7075 as wider US dollar strength dominated markets.
Source: EconomicCalendar
Link: http://www.economiccalendar.com/2016/11/15/global-dairy-trade-prices-rise-4-5-new-zealand-dollar-unmoved/
