Dry weather already feeding into NZ markets

Dry weather is already feeding into higher power and dairy futures prices. Picture/NZ Herald.

Drier-than-normal weather is already translating into higher dairy futures and wholesale electricity prices.

Weather agency Niwa said a "powerful and persistent" ridge of high pressure over much of New Zealand during the second half of November caused near-record or record dryness in some locations and has led to the depletion of soil moisture levels with plants in some areas in the lower North Island and South Island approaching their "wilting" points.

Across the North Island, soil moisture levels have generally decreased over the past week, it said. Soil moisture levels have subtly increased across the Central Plateau.

The driest soils across the North Island compared to normal for this time of year are found in the Kaipara District, Taranaki, and in Horowhenua, Kapiti Coast, and Porirua, while the wettest are in the upper Coromandel Peninsula.

"Hotspots" in the North Island are found in the Kaipara District, northern Auckland, across Hawke's Bay, and in parts of southern Manawatu-Whanganui, it said.

Over the past week, hotspots have developed in parts of southern Auckland and northern Waikato, as well as Wellington-Wairarapa.

Across the South Island, soil moisture levels have generally decreased over the past week except for a small increase in Central Otago due to thunderstorm activity.

OM Financial director financial markets, Nigel Brunel, said whole milk powder prices had gone into "contango" - when the prices in the longer dated contracts exceed short dated contracts, reflecting the market's view of a tightening of supply further down the track.

"It [the weather] has had a little bit of an impact, certainly futures market prices have pushed away a bit from the last GDT," he said.

Futures market pricing suggests a 3 per cent gain in whole milk powder prices at tomorrow's Global Dairy Trade auction. Picture / John Stone

In the wholesale electricity market, the first quarter price at Benmore had risen to $92 per megawatt hour from $61/MW/h a month ago, reflecting lower lake levels, Brunel said.

"The power market is tracking right up, so this could prove problematic," he said.

ASB Bank rural economist Nathan Penny said the bank was keeping an eye on the weather but that the bank was not changing any of its forecasts yet.

"It's still early days - summer has just started and it hasn't been dry for that long yet," he said.

"Milk, lamb, and beef prices are favourable, so farmers can by and large afford to buy supplementary feed," he said.

Brunel futures market pricing suggested a 3 per cent gain in whole milk powder prices at tomorrow's Global Dairy Trade auction from the last sale.

Whole milk powder auction prices have been sliding since September 20, when they were at US$3122/tonne. At the last sale on November 22 whole milk powder traded at US$2778/tonne.