Thursday, 28 September 2023 10:55

Riding the rollercoaster!

Written by  Content supplied by Rabobank


Attention remains laser-focussed on both supply and demand from China.

Supply growth is still evident - but showing signs of slowing - while demand remains sluggish. While the triggers for a rebalancing within the Chinese dairy industry are at play, the severity of the economic headwinds and the length of the lull in Chinese economic growth are shrouded in uncertainty.

Markets are watching for signs of how New Zealand milk production is shaping up in the run-up to the spring peak flows.

Milk flows for the first two months of the 2023/24 season show production is 1.3% behind on a tonnage basis.

This season will be a tale of two islands, with the North Island broadly on tough weather conditions affecting grass growth, while the South Island is shaping up well ahead of the spring flush.


After slipping through July, farmgate beef prices started tracking up again in August 2023.

NI bull prices pulled into line with the five-year average and followed a more normal seasonal trend, lifting 2.6% between 4 August and 25 August to NZ$5.80/kg. North Island store prices rose slightly in late August - R1 Friesian bulls were up 3% to NZ$3.65/kg for the month  - while South Island store prices remained flat for most of August.

With New Zealand bull production declining in line with the normal seasonal trend, and the price of US imported lean trimmings showing signs of lifting, schedule prices should follow the normal seasonal trend up over the coming months and track close to the five-year-average.


Lamb prices stabilised through August, although they remain at historically low levels.

A consistent theme remains soft demand from key markets and full supply chains. The average price for August (NZ$6.96/kg) was down 25% for the North Island and 26% for the South Island compared to the same period last year. These prices are slightly below farmgate prices in 2020 and are the lowest experienced in the last five years.

However, at NZ$6.95/kg, lamb prices received here in New Zealand are higher than those received by farmers in Australia. Lamb production for the season to date (week 45) is down 1%, while mutton production is down 9%.

Sheepmeat exports in July 2023 are down 25% YOY to 26,767 tonnes. Although lower than 2022 volumes, they are more in line with 2021 volumes and represent the low part of the season as volumes bottom in September.

Farm Inputs

August was the first month since the Russian invasion of Ukraine in February 2022 that all three fertiliser price references showed a positive movement. Nitrogen rose as much as 7.4% MOM but closed at -7%. Phosphate is up a robust 17% and potash is up 1.5%.

The catalyst is strong demand from South America, mainly Brazil. However, this surge is likely to be temporary.

Other markets showing sluggish activity are Europe and North America. Another pressure on nitrogen fertiliser prices comes from natural gas.

So far, the fears of shortages are over. Storage replenishment in Europe is on track to meet winter demand and this is reflected in its spot price. It is 43% lower than in January 2023, and at the same level as in July 2021.

Interest and Exchange Rates

The NZ dollar fell by almost 3% in August as concerns over the Chinese economy impacted the outlook for commodity exports.

The NZ$ opened the month at 0.6209 before closing the month at just 0.5967, making it one of the worst performing major currenies over the period.

The lower NZ$ could cause some problems for the RBNZ, as a weaker currency makes imports more expensive and therefore causes the country to start importing inflation from abroad.

Rabobank doesn't expect any further increases to the OCR. The sharp slowdown in consumption that we are now witnessing, along with an expected softening in the labour market and perhaps a slightly tighter fiscal stance if the National Party wins the October election (as polls currently predict), all point to the RBNZ remaining on hold.

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