NZ dairy sector worst hit
The Rabobank report says a combination of factors has conspired to see New Zealand prices hit far harder by the downturn than those in other key dairy exporting regions.
"In this cycle, the pain has been asymmetrical, with New Zealand at the sharp end, and so far pretty alone," Mr Harvey said. "This has been for a combination of reasons - including a relatively strong New Zealand currency position, our small domestic market and New Zealand dairy's exposure to China and to whole milk powder, which are the worst-hit markets."
Actions taken that will trigger milk price recovery
The Rabobank report says while dairy prices are unlikely to be much improved over the next six months - as the market "strives to turn off the taps of supply growth in the face of weak demand requirements" - the factors that will trigger a turnaround are now in place. "These mechanisms that will eventually rebalance the market have been slower to trigger than expected, but they are now underway," Mr Harvey said.
These include: milk price reductions in China starting to choke off domestic production growth; lower New Zealand production which will lead a supply-side adjustment in export regions; reduced supply growth from the US and EU due to the collapse of international commodity prices plus accelerated dairy consumption growth depleting current accumulated stocks. Mr Harvey says these factors will work together to tighten the market for "new" milk and a significant price recovery is expected to be underway by mid-2016. "In the medium term Rabobank still anticipates that the market will need to trade - in WMP equivalent - at pricing around mid-way between USD 3000-4000/ tonne in order to balance the global market, assuming exchange rates at or near August 2015 levels in key regions)," he said. The report sees "a fistful of reasons" to expect the medium-term outlook to hold better for NZ.
Rabobank supporting dairy clients
Rabobank Country Banking general manager Hayley Moynihan says that as an agri banking specialist, Rabobank is well versed in dealing with the cycles of agriculture and is committed to supporting its dairy clients over the coming seasons. "During the dairy market down turn in 2009/10, Rabobank was able to extend additional credit to its clients to get them through a difficult period so they could take advantage of the better years that followed. Rabobank also took on many new clients over those difficult years. This time around our approach will be no different," she said. "We're currently working very closely with our dairy clients to minimise the size of any deficits and additional borrowings to ensure their businesses are as resilient and successful as they can be for the future." "Ultimately, we take a long-term approach to banking rural businesses and we certainly intend to stick by our clients through this difficult period."