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Trump's trade war weighs on outlook for NZ dairy market

Thursday 26th July 2018

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As New Zealand kicks off a new dairy season, a leading dairy brokerage is feeling bearish about the outlook as concerns mount about the impact of US President Donald Trump’s trade war, resulting in tit-for-tat tariffs that are likely to hike costs and dampen demand.

"This trade war that's been initiated by the US and by Trump is really going to have no winners out of it," said OMF director of institutional commodities Nigel Brunel. "We're not liking what we see."

Brunel said exporters and importers are likely to face higher costs which will hurt economic growth and potentially stymie demand for products like whole milk powder, New Zealand's key dairy export product. Trade data released yesterday showed milk powder exports in June fell 25 percent and the quantity dropped 32 percent compared with June last year due to declines across a range of key markets, including large falls to Algeria and China. Recent Global Dairy Trade auctions have also shown weakening demand out of China, he said.

Still, it's relatively early in the New Zealand's dairy season, with production not due to peak until mid-October or early November, and returns can be impacted by a wide variety of factors including the weather, the value of the currency, and output in rival dairy countries.

"Our season is kicking off right now and it's too early to say how the production is going to be in October or November because we are too far away - there's lots of things that could happen between now and then," Brunel said. "But you certainly would possibly be looking at a very good production year out of New Zealand and if that was to follow through and it was substantially up and then on the other side of that you've got potentially less demand coming out of places like China, then those two things coming together don't paint a perfect picture."

Future indicators for global growth, such as the classic three benchmark commodities of gold, oil and copper, are starting to weaken substantially, he said.

"That's always a little bit of a canary in a coal mine sort of event," Brunel said. "That's not a good sign."

Trump's trade war could slow global growth and spark a recession, he said.

"We are not predicting that - we're just saying the signs as they sit right now aren't particularly flash," Brunel said. "The US initiated tariff measures are not good and there are potentially consequences about that and you are starting to see some early warnings signs."

Dairy products are New Zealand's largest export commodity.


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