A warm welcome to spring!

Average monthly USDA prices all moved lower in August 2022 - compared to the month prior. This was led by powders and closely followed by fats. Markets have moved lower in response to inflation concerns, recession fears, and global economic growth doubt. Of the past eleven Global Dairy Trade Events, ten have resulted in the Average Price Index declining. Fonterra has revised their midpoint lower to NZ$9.15/kgMS, down from NZ$9.50/kgMS. RaboResearch hold its forecast for the current 2022/23 season at NZ$9.00/kgMS.

Beef

The spring outlook for beef demand and farmgate pricing is positive.

The North Island bull price lifted further through August to NZ$6.25/kg cwt at the end of the month, which is NZc 0.10 above the schedule price for the same week last year.

RaboResearch anticipates that the New Zealand farmgate beef price will remain elevated in line with 2021 pricing, as the new 2023 season kicks off in October.

Pricing is anticipated to be supported by tight global beef supplies and strong demand from China and the US, despite economic headwinds in both markets.

Consumers are beginning to trade down beef cuts, increasing their consumption of lower value cuts such as mince. Increased consumption of lower value cuts is good news for exporters because New Zealand is a major exporter of lean trimmings.

Sheepmeat

Lambing is well underway in many areas across New Zealand. Although it has been a wet start to life for lots of lambs, farmers will be hoping that spring sunshine boosts grass and lamb growth.

The lamb kill remains behind on last year's tallies - as of July 30 (week 43 of the season), the national lamb kill was behind -3.7% or around 600,000 head behind. The South Island lamb price has continued to deliver good news, climbing to NZ$ 9.40/kg cwt at the end of August. Although pricing is still at record high levels, the height of the spring lamb schedule peak is yet to be determined and may not be far away from current price levels.

The July export data showed some encouraging improvements, with export volumes increasing month-on-month compared to June, and total export volumes were 32% higher on July 2021 volumes.

Fertiliser

As of August 16, local New Zealand prices for urea increased 10% MOM, while Super Phosphate increased 1% and 20% super potash increased 1% MOM.

Rabobank sees upside price risk for global urea prices moving into the end of the year, particularly in the wake of natural gas prices reaching a record-high in Europe and plant closures announced in the United Kingdom, Poland and Lithuani in recent weeks. Meanwhile, in China, a downturn in electricity produced via hydropower due to water shortages is resulting in power restrictions for urea plants. Reduced production coupled with export controls is hampering chances of increased export flows. Northern Hemisphere heating needs are also on the radar at Q3 turns into Q4.

These factors mean the cost of gas, and therefore ammonia production, will likely lift.

Exchange Rate

Another RBNZ 50-basis-point cash rate hike - to 3.5% - is likely in early October.

The NZ dollar remained volatile and rather low at close to USc 0.62 as the temporary move to USc 0.65 could not be sustained.

We expect a move towards USc 0.66 within 12 months. The RBNZ forecast is now that the base rate peaks around 4.1% in mid-2023, up from 3.9% previously forecast. We expect US dollar strength to turn around on a six-month timeframe, allowing NZ$/ US$ to recover to 0.64 within six months and to 0.66 within 12 months.