2 Jul 2015
NZ GDT slump: Risk of more RBNZ cuts - ANZ
FXStreet (Bali) - Dairy prices slid further overnight, with the GDT-TWI down another 5.9% to US$2,276/t, notes the Research Team at ANZ, which now anticipates the risk for more, rather than less, RBNZ OCR cuts.
Key Quotes
"The further slump was led by wholemilk powder, which declined a very large 10.8% to just $2,054/t. At that level, it is not too far off the cyclical lows of early 2009. The market is struggling to digest larger seasonal volumes from New Zealand with many buyers’ immediate requirements covered."
"There is little on the horizon at present to suggest any meaningful turnaround in prices over coming months. While the NZD/USD is adjusting lower to the continued rout, dairy companies hedging policies mean the full benefit of a lower currency wont all accrue to the 2015/16 milk price."
"This means there is going to be downward pressure start to build on milk price forecasts for 2015/16. While cash-flow constraints are largely locked-in for farmers for the next 12 months, further forecast downgrades will extend these restrictions well into the start of 2017."
"This will of course further impact on confidence, investment, spending etc. With this in mind it is not just the currency, but also monetary policy will no doubt need to do more of the heavy lifting. That is, the risk is we see more, rather than less, OCR cuts."
Key Quotes
"The further slump was led by wholemilk powder, which declined a very large 10.8% to just $2,054/t. At that level, it is not too far off the cyclical lows of early 2009. The market is struggling to digest larger seasonal volumes from New Zealand with many buyers’ immediate requirements covered."
"There is little on the horizon at present to suggest any meaningful turnaround in prices over coming months. While the NZD/USD is adjusting lower to the continued rout, dairy companies hedging policies mean the full benefit of a lower currency wont all accrue to the 2015/16 milk price."
"This means there is going to be downward pressure start to build on milk price forecasts for 2015/16. While cash-flow constraints are largely locked-in for farmers for the next 12 months, further forecast downgrades will extend these restrictions well into the start of 2017."
"This will of course further impact on confidence, investment, spending etc. With this in mind it is not just the currency, but also monetary policy will no doubt need to do more of the heavy lifting. That is, the risk is we see more, rather than less, OCR cuts."