The latest New Zealand Global Dairy Trade (GDT) auction recorded a headline 1.4% increase in prices following an unexpected 3.0% decline previously with a 2.9% increase in Whole Milk Powder prices.
Futures markets had been expecting a bigger increase in prices in the latest auction, which prevented more than a marginal increase in the New Zealand dollar.
There have been very high rainfall amounts in parts of New Zealand during the past month and this had had some negative impact on production. The impact has been notably severe in the Waikato region, where October production is down around 10% from the same period in 2015/16. The weaker milk production has also had an impact in curbing auction amounts of products, although the immediate price impact has been limited.
The latest RaboBank quarterly report indicated that global dairy supply would decline sharply in the 2016/17 season with a significant decline in European production, while there have also been weaker production in Australia, Brazil and Argentina.
Underlying demand conditions are still relatively weak, which will limit the scope for increases in overall dairy prices.
The latest New Zealand CPI data was slightly stronger than expected with a quarterly increase of 0.2% from 0.4% previously, which dampened expectations of a rate cut at the November Reserve Bank of New Zealand (RBNZ) policy meeting. Another gain in dairy prices at the next auction would slightly reduce pressure for a further easing of monetary policy, although it would not be a decisive influence.
The New Zealand dollar was unable to make headway after the data given expectations of a stronger gain in the GDT auction, but NZD/USD did edge back above the 0.7200 level.
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