ASB report anticipates brighter times

Most dairy farmers' bank accounts will be "back in the black'' this season as they look forward to brighter times in 2017.

ASB's latest farmshed economics report said the dairy downturn was "now clearly in the rear-view mirror'' despite a dip in prices last month.

Even after a 3.3% fall over January, overall dairy auction prices were 50% higher than the level back in mid-2016.

The January weakness was attributed to recent increases in whole milk powder (WMP) offer volumes, which appeared to have been counterproductive, the report said.

While it made sense to take advantage of production flexibility and, in this case, switch to more profitable WMP, that switch had "slammed the brakes'' on WMP prices.

However, the recent results did not distract from the overall positive dairy story. Prices had lifted to a level in line with historical averages.

Favourable New Zealand commodity prices over 2017, compared with 2016, were expected, the report said.

Both beef and lamb prices had started 2017 better than 2016. For lamb, ASB was "cautiously optimistic'' prices could modestly build on recent gains.

Demand for lamb in most markets was "relatively positive'' at present, with the UK being the exception.

Already tight supply was being squeezed tighter on the back of dry conditions, particularly in the North Island.

It was similar in Australia where production was also slow for the time of year. The combined supply shortfall should underpin prices in the short term.

Current beef prices were a touch higher than back in January 2016, as well as January 2015, levels.

The continued strong performance by beef pointed to prices remaining healthy over coming months.

Lack of supply, both locally and from Australia, continued to keep New Zealand beef prices high.

Meanwhile, US prices fell last year as US beef production increased. Eventually, lower US prices should filter through to New Zealand prices, the report said.