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Milk price rally fades, as rains ease New Zealand dryness concerns

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The recovery in milk prices faded after heavy rains eased fears over dryness in New Zealand, the top exporting country, although a lack of rainfall remains an issue for producers in some parts of Australia.


Whole milk powder futures for March eased by 0.6% to $3,115 a tonne on the NZX exchange – giving back some of the gains made last week after a caution by Fonterra over New Zealand volumes fuelled strong gains in values at GlobalDairyTrade auction.


A buoyant market has “given way to modest falls”, said Tobin Gorey at Commonwealth Bank of Australia.


The price decline followed the onset of heavy rains in New Zealand, where dryness had, in lowering pasture condition, prompted a series of cuts to hopes for milk output in 2017-18.


Auckland-based Fonterra last week reported its December collections down 5.5% at 176.1m kilogrammes of milk solids, blamed “dry, hot weather” during the month.


‘Severe thunderstorms’


However, January has brought accelerated rainfall, with meteorological group MetService reporting that “this morning a downpour brought 52mm [2 inches] of rain in one hour to Rosedale in Auckland, leading to localised flooding.


“Much of the North Island is under a watch for severe thunderstorms, which can bring deluges such as this.”


The return to a wetter pattern “should improve production somewhat”, Bank of New Zealand said, although adding that follow-up rains are needed.


While BNZ forecast a drop of 2% in New Zealand milk output in 2017-18, which ends in May, that is less severe than the 3% decline that Fonterra, which processes the vast majority of the country’s milk, forecast last month for its collections.


Reflecting the slightly higher output expectation, BNZ forecast farmgate New Zealand milk prices at NZ6.30 per kilogramme of milk solids for this season, NZ$0.10 below the Fonterra forecast.


Australian outlook


By contrast, in Australia, some disquiet at milk output prospects has re-emerged, after some recovery from the 6.9% drop in volumes reported for 2016-17 [which finished in June in the country], and which was down to inordinately wet conditions in many producing areas.


While November milk deliveries, for instance, rebounded 4.3% year on year, National Australia Bank said on Tuesday that it did not “expect major increases in Australian milk production” in 2017-19, citing dryness.


“Seasonal conditions have been mixed, with Gippsland,” a major dairy region in eastern Victoria, “in particular seeing very dry conditions in 2017,” the bank said.


“Summer rain has been somewhat kinder” elsewhere in Victoria, “although a drink would be welcome in much of the state”.


At Commonwealth Bank of Australia, Tobin Gorey said that “the dairy region in western Victoria is on the dry side.


“And the dry period has continued for long enough to make it a concern.”

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