NZ agri: up at the crack of dawn

Susan Kilsby & Sharon Zollner

NZ Agriculture Economist and NZ Chief Economist at ANZ

New Zealand’s primary agriculture sectors are generally doing well at the moment with strong production and prices across the majority of sectors.

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Excellent growing conditions have bolstered milk production this season although meat processing has been delayed as farmers hold onto livestock for longer, meaning heavier stock for processing when they eventually come forward.

" China continues to become a more and more important market for NZ’s primary produce.”

With in-market prices average or above for virtually all sectors - with wool the only major exception - the relatively low NZ dollar is resulting in greater returns for farmers and growers.

China continues to become a more and more important market for NZ’s primary produce. The flipside of opportunity is vulnerability: NZ is increasingly exposed to the risks associated with a slowing of this economy. But for now demand from this market is unabated.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came into force at the beginning of this year for the seven nations that have ratified the agreement. NZ’s dairy sector stands to gain the most from this agreement, with tariff reductions for this sector estimated to be worth $NZ 86 million per annum once fully implemented. However, in percentage terms, it is the meat and horticultural sectors with the most to gain, primarily due to improved access into Japan and Canada.

Prices at farm/orchard level relative to 10yr average

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Dairy upturn

Dairy commodity prices turned a corner in late 2018 to make up some of the losses incurred in the first half of the season. If prices continue to trend up, ANZ Research’s $NZ6.10/kg milksolid (MS) forecast will prove too low.

At present markets are being supported by both a slowing in global milk supply and steady demand. The easing of global milk supply growth is expected to be maintained through the latter part of this season but the demand side of the equation is a little more uncertain.

Lamb prices holding

Lamb prices are holding at high levels with store prices particularly strong due to the excess of feed available.

Schedule prices remain above $NZ7/kg carcass weight (CW) but are expected to resume their typical seasonal decline once supply for the European Easter trade is finalised. Strong demand for lambs and ewes due to the excess of feed on hand is supporting store-market prices. Sales, both on-farm and through the yards, have been extremely well supported by buyers. Store lambs are worth 20-30 per cent more than they were this time last year, with prices for smaller lambs lifting more than heavier lambs.

Beef – stable returns

Beef schedule prices have held relatively steady over the past month. The volume of stock available for processing is less than normal due to the extra feed on hand. This is particularly the case in the North Island where lower stock numbers are keeping schedule prices near year-ago levels. In the South Island, where processing numbers are more closely aligned with the seasonal norm, prices are down by 10 to 25c/kg. Store markets remain very strong in both islands, with demand exceeding supply at the majority of sales.

Grain

Grain prices are strong as 2019 commences, in both the international and local markets. Local milling wheat prices are about 30 per cent higher than a year ago while feed wheat is up 15 per cent. The last time prices were this strong was in the middle of 2014. The lift in feed barley pricing has been a little weaker but nevertheless prices are up, despite low demand for feed from the dairy industry. Demand for grain for milling, and from the pork and poultry industries, tends to be relatively stable, whereas dairy industry demand for grain fluctuates considerably, depending on pasture growth rates and milk prices.

Log returns buoyant

The forestry sector is looking in good shape for 2019 with export log prices holding up at high levels and plenty of timber being felled. Export demand continues to be unpinned by strong demand from China.

The volume of logs stockpiled on wharves in China is lower than normal, indicating additional buying activity in the coming months will be required to replenish stocks.

Susan Kilsby is a NZ Agriculture Economist and Sharon Zollner is NZ Chief Economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.