Economist issues warning despite global commodity price rise

A rural economist is taking a cautious approach to a rise in international dairy commodity prices.

Global dairy commodity prices lifted 2.2 percent overall at the December 4 Global Dairy Trade (GDT) event. 

It was the first increase since prices started to decline in May 2018, with prices increasing for all commodities except cheddar.

However ASB senior rural economist Nathan Penny suspects currency movements explain most of the price gain.

"With that in mind and signs of further New Zealand production strength, we anticipate that dairy auction prices are more likely to stay soft than rise over the next few months," he said.

Change in GDT Price Index.
Change in GDT Price Index. Photo credit: Global Dairy Trade

He said the rise is similar to falls in the US currency over the past fortnight. 

"In particular,the Chinese yuan has lifted, making the USD-priced products cheaper for Chinese buyers," said Mr Penny.

"We also suspect already-strong NZ dairy production may, in fact, strengthen further."

Recent favourable weather and growing conditions are likely to translate to strong or even stronger production numbers over summer. 

Nathan Penny has also re-confirmed the bank's recently lowered 2018/19 milk price forecast of $6/kg, and expects Fonterra will shortly trim its forecast to be more in line with his forecast.