Concerns around the coronavirus outbreak have driven down global dairy prices, however a senior rural economist suggests the impact on dairy markets will be short-lived.
Dairy commodity prices dropped 4.7 percent at the latest Global Dairy Trade (GDT) event overnight, amid fears that coronavirus will stifle Chinese demand.
But ASB senior rural economist Nathan Penny said it could have been much worse.
"Whole milk powder prices fell overnight, but the fall was no worse than expected. Indeed, prices fell by more back on December 17, and the price fall overnight didn't even make the top 30 of auction price falls," said Penny.
Penny said the auction detail was also encouraging.
"For example, Chinese buyers remained active at similar levels to recent auctions. In addition, three product prices actually rose, while the overall auction price fall was a moderate 4.7 percent"
He believed the coronavirus impact on dairy markets and prices would be modest and short-lived.
"In other words, we expect dairy market fundamentals to reassert themselves as the dominant driver of prices before too long."
Despite that, Penny said markets were keeping a close eye on developments.
"The outbreak situation is very fluid and, with that in mind, dairy price implications are subject to change.
"Indeed, another false step by auction prices at this relatively late stage of the season and we will reassess our 2019/20 milk price forecast of $7.50/kg."
The possibility of a drought in some areas could also impact milk prices.
"A fully-fledged drought has the capacity to throw dairy prices equally in the opposite direction."