An embattled dairy sector has finally received some good news with the first increase in dairy prices for the year - but global supply still remains strong.
Overall prices lifted 1.4% in this week's GlobalDairyTrade auction, with whole milk powder prices up 5.5%, although it remained about 13% lower than at the end of 2015.
Casein recorded the largest increase, up 14.9%, while skim milk powder rose a more modest 1.3%.
While any improvement in prices would be welcomed, there remained few signs of a marked turnaround in the fundamentals which had pushed prices to such low levels, Westpac senior economist Anne Boniface said.
Global milk supply remained plentiful, with supply from Europe continuing to grow particularly strongly, and that supply backdrop was likely to continue to keep prices under pressure for some time. Eventually, low prices would induce a supply response but, even then, growing European stockpiles still had to find their way on to markets.
‘‘Consequently, we continue to expect prices to bump around near current levels until late 2016 before gradually improving,'' she said.
ASB rural economist Nathan Penny said this week's price lift followed better sentiment across markets generally. The seasonal decline in New Zealand production was also beginning to support dairy prices. The main impetus for the price lift was expected to come via tighter New Zealand and, to a lesser degree, Australian, supply.
Ongoing European Union production growth was expected and demand from markets, such as China, was expected to remain relatively soft. Those factors partially offset lower Oceania supply and dampened the price recovery, Mr Penny said.
Fear of an El Nino-induced drought, low dairy prices and relatively attractive beef prices encouraged a big lift in cattle slaughter last year.
While low dairy prices meant pressure was likely to remain on dairy farmers over the coming year, with some likely to turn to stock liquidation as a temporary way of supporting cash flow, Ms Boniface believed it was unlikely there would be a similar-sized bounce in dairy cow culling this season.
