Further declines in prices at the GlobalDairyTrade auction are likely heading into 2014 as increasing supply in New Zealand and overseas finds its way on to international markets, Westpac senior economist Anne Boniface says.
There was a modest 1.9% fall in this week's auction, although prices remained 44% above those of the corresponding time last year.
There had been a surprisingly strong rebound in New Zealand's agricultural production after the drought earlier this year and while that was good news, increased supply would eventually weigh on prices, she said.
Dairy production had been the quickest to rebound. Fonterra reported production was up 5% on 2012 for the four months ended September while other companies had reported even stronger gains.
Last week, Westland Milk Products was reportedly seeing milk flows running 16% ahead of last year and there were reports of smaller Waikato dairy companies collecting 8% to 10% more than the corresponding time last year.
Rabobank's latest agribusiness monthly said the only potential climatic impact so far this season was if the many irrigators blown over in Canterbury during high winds in early September were not repaired by the time it started to get dry.
