Wednesday, 27 March 2024 09:55

Possible signs of better times ahead?

Written by  Peter Burke
ASB economist Nathaniel Keall. ASB economist Nathaniel Keall.

The latest ASB quarterly report suggests a more positive outlook for the primary sector compared with previous quarters.

It notes that prices for key commodities have rebounded and forecasts have been nudged upwards.

ASB economist Nathaniel Keall says the more bullish growth outlook has a lot to do with changing expectations around what monetary policy will do. He adds that markets have become more bullish that rates won’t need to move as high, and the global economy might manage the fabled ‘soft landing’.

The report notes that dairy prices have managed to rebound by about 22% since their lowest point earlier in the season, but are still around 30% below the peaks enjoyed the previous year.

Keall says the main feature of recent auctions has been the enduring absence of Chinese purchases. Over the past three months, the world’s largest dairy importer has purchased less than 40% of the whole milk powder (WMP) on offer at each auction, versus a historical average of 55-60%. “We’ve twice revised our 2023/24 milk price forecast since our last report. The recent uptick has also pushed our forecast for the 2025 season higher, to a fairly robust $8.30 per kgMS,” he says.

But while there are some sweeteners for the dairy sector, the report describes meat prices as looking “pretty crook” and notes that overall protein prices have been hit the hardest. Keall says this is driven by cost of living pressures with consumers reducing their meat consumption. He says this is likely to continue for a while yet.

“But pessimism around the global economy is no longer acute as it once was, so we are hopeful that meat prices will rise modestly as the season draws to a close.”

Two key factors remain a problem for the NZ lamb industry: The whopping 13% rise in Australian lamb production, which has led to an oversupply and a generally weak lamb market; and China, where growth still remains sluggish as the country tries to sort out its domestic economic problems.

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