Jamie Gray is a business reporter for the NZ Herald

Risk of El Nino drought eases after rain

ANZ said the rain could bring with it an unwelcome increase in dairy production at a time when the world is still suffering from oversupply.
ANZ said the rain could bring with it an unwelcome increase in dairy production at a time when the world is still suffering from oversupply.

Rain since the New Year has reduced the drought risk associated with the current El Nino weather pattern, ANZ Bank said.

State owned weather agency Niwa said last week that soil moisture conditions had improved in parts of the country last week.

The ANZ, in a market commentary, said the rain could bring with it an unwelcome increase in dairy production at a time when the world is still suffering from oversupply.

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"Recent rains have helped to improve pasture conditions across the country and reduce the risks from El Nino substantially - in fact apart from a couple of regions, it's turned into something of a non-event," the bank said.

"However, that comes with a sting in the tail: higher local production, together with buyers being comfortable with their inventory positions, should further delay any sustained lift in global dairy prices," ANZ said.

The dairy sector remains challenged, and ANZ said it was only a matter of time before Fonterra was forced to downgrade its milk price forecast for 2015/16 to the lower end of the bank's expected range of $4.25-4.50/kg of milksolids.

"Even if the milk price recovers to $5.75 in 2016/17 - a stretch at present - we estimate that farm cash-flow will remain below that of 2014/15 until mid-2017," the bank said.

Niwa, in its weekly "hotspot" report, said moisture levels across the North Island have mostly remained the same or increased.

Recent rains have helped to improve pasture conditions across the country and reduce the risks from El Nino substantially - in fact apart from a couple of regions, it's turned into something of a non-event.

The exception was from coastal Gisborne to Hawke's Bay where soil moisture levels have decreased slightly, it said.

Central Waikato, much of Taranaki, northern Manawatu-Whanganui, Hawke's Bay, coastal Gisborne and extreme western Northland have below normal soil moisture for this time of the year.

Soil moisture is near to above normal in eastern Northland south to the coastal Bay of Plenty region and in coastal Manawatu-Whanganui to parts of the Wellington region, it said.

Across the South Island, soil moisture levels have increased significantly from central Otago northward over the past week.

The greatest increases were found from central Otago to mid-Canterbury and from the Tasman to interior Marlborough regions.

Soil moisture levels are below normal across much of Southland, and southern and interior Otago but near or above normal along the West Coast, Niwa said.

- NZ Herald

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