Thursday, 18 August 2022 10:55

Wet, wet, wet!

Written by  Content supplied by Rabobank

After a very wet July, NIWA is forecasting a ray of hope for sodden farmers. Temperatures are most likely to be warmer than average across most of the country through the middle of spring 2022.

Dairy

Commodity prices continued their downhill slide over July 2022, catching a case of the winter blues. A fog of uncertainty continues to linger over the demand picture, driven by inflation, recession fears, and global economic growth doubt. These concerns are not limited to dairy, with a basket of commodities experiencing price volatility. RaboResearch holds its forecast for the current 2022/23 season at NZ$ 9.00/ kgMS. Meanwhile, milk production was flat on last year in June 2022 – the first month of the new 2022/23 production season. On a milk solids basis, production nudged 1% higher YOY, reflecting the trend we have seen over the last three years for modest growth rates over the month of June.

Beef>

New Zealand beef export volumes were 9% lower YOY, and 4% below the five-year average for June. The reduction in exports is due to lower US demand – exports to New Zealand’s second-largest market were down 19% YOY in June.

The ongoing liquidation of the US cow herd due to drought and high input costs, particularly feed, has led to the US market having ample supplies of 90CL cow, reducing demand for New Zealand 95CL and 90CL. The lockdowns in China have not significantly impacted New Zealand beef export volumes. Exports to China for the first six months of this year were 30% higher than the five-year average export volume. The average New Zealand beef export value to China was NZ$ 10.34/kg FOB in June, which was 44% higher than the average price in June 2021.

RaboResearch anticipates that farmgate pricing will remain elevated into spring, supported by tight global beef supplies and a favourable exchange rate.

Sheepmeat

The lamb schedule continues to track well above 2021 pricing and the five-year average.

The South Island lamb price climbed to NZ$ 9.25/kg cwt at the end of July, and the mutton price held steady in July at NZ$ 6.10/kg cwt in the North Island and NZ$6.05/kg cwt in the South Island.

Processing backlogs are reoccurring, particularly in the North Island. The national lamb kill at week 39 for the season (2 July), was down 6.6% YOY, at around 880,000 lambs. It is unclear how many lambs there actually are yet to come forward, but concerns are mounting around the crossover with the bobby calf kill. Wet weather across the country and a lack of spring lamb contracts are dampening farmer confidence to trade lambs. This is being reflected in weaker store lamb prices. We expect the new season lamb schedule to remain elevated above five-year average pricing, supported by high animal protein prices globally. However, some of the ‘shine’ may start to come off the lamb schedule as lifting Australian production increases market competition for New Zealand lamb.

Fertiliser

After several months of falling global urea markets, July saw prices consolidate at 11-month lows.

This is alongside signs that supply- and demandside issues will move markets higher again in coming months.

In the closing days of July, Russia added Latvia to the list of countries it would not export gas to unless paid for in roubles – a move that would breach the EU’s sanctions on Russia. News this past month from China further underscores this likelihood, with some urea exporters reportedly asked to suspend exports.

Market commentators now suggest that China’s urea exports will now start falling and remain limited until April 2023.

It had been hoped that a longer reprieve in global fertiliser markets would deliver some downside to local fertiliser markets. But with global markets already moving higher, we now see less chance of local prices finding lower ground in the next six months.

Exchange Rate

A 50-basis-point cash rate hike – to 3.0% – is expected in August by the RBNZ.

The NZ$ has been volatile and rather low at close to USc 0.62, compared to almost USc 0.70 earlier this year. However, we expect a move towards USc 0.67 within 12 months. On 5 October, there will likely be another 50-basis-point hike and potentially another 25 or 50 basis points on 23 November, bringing the Official Cash Rate to 3.5% (or above) by year end. With these moves, by year-end, the RBNZ would get close to the 3.5% to 4% range many analysts expect the cash rate to reach in 2023.

More like this

No easy ride for struggling sheep farmers

Stubbornly high farm input costs, a slow Chinese recovery and a flood of Australian lamb onto the global market are the main factors contributing to the tough times being faced by NZ's sheep farmers.

Featured

Sheep drench resistance costly

Analysis by Dunedin-based Techion New Zealand shows the cost of undetected drench resistance in sheep has exploded to an estimated $98 million a year.

Dairy sheep and goat turmoil

Dairy sheep and goat farmers are being told to reduce milk supply as processors face a slump in global demand for their products.

Hurry up and slow down!

OPINION: We have good friends from way back who had lived in one of our major cities for many years.

National

Knowing bugs means fewer drugs

A mastitis management company claims to deliver the fastest and most accurate mastitis testing available at scale for New Zealand…

Machinery & Products

AGTEK and ARGO part ways

After 12 years of representing the Landini and McCormick brands in New Zealand, Bay of Plenty-based AGTEK and the brands’…

100 years of Farmall Tractors

Returning after an enforced break, the Wheat and Wheels Rally will take place on the Lauriston -Barhill Road, North-East of…

JD unveils its latest beast

John Deere has unveiled its most powerful tractor ever, with the launch of the all new 9RX Series Tractor line-up…

Biggest Quadtrac coming to NZ!

In the biggest announcement that Case IH Australia/New Zealand has made around its tractor range, its biggest tractor is about…

» Latest Print Issues Online

The Hound

Why?

OPINION: A mate of yours truly wants to know why the beef schedule differential is now more than 45-50 cents…

Fat to cut

OPINION: Your canine crusader understands that MPI were recently in front of the Parliamentary Primary Sector Select Committee for an…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter