Wednesday, 07 March 2018 11:55

Riding the pink cloud

Written by  Pam Tipa
Nathan Penny. Nathan Penny.

Agriculture is in a sweet spot, says ASB rural economist Nathan Penny.

After a rough run for the lamb sector in the last few years the present season has been “one out of the box”, he told the Agcarm conference in Auckland on February 22.

“At the start of the season lamb prices weren’t too flash, and Brexit had just happened…. We were expecting more of the same in terms of low returns in the sheep sector. As it turns out, other players have stepped up and filled the gap the UK in part left behind.

“The other markets are China, US, Middle East and even other parts of Europe…. That’s some of the best prices we’ve seen in the lamb sector since 2011-12 and the second best prices on record.

“Those markets have picked up the UK slack. No one saw that coming; we were all talking about what impact Brexit would have and didn’t expect other markets to be so strong, or at least this soon.”

Lamb prices are expected to stay healthy -- $6/kg plus – for the rest of the season. They will dip as always at the end of the season but will end up much higher than last season.

Supply is constrained by the lamb flock still falling as it has for several years; Australia is similar so the two largest exporters are reducing their flocks.

Coarse wool prices are very low and likely to remain so. But medium and fine wools are doing well with Merino very strong. 

Beef prices were the highest on record for the month of January, he says. 

“Roll on 2018 for beef, another good season by the looks of it. Generally beef fundamentals are pretty good; there is plenty of demand out there.”

The key US market is firm and the Chinese market is growing. 

Prices are expected to remain healthy over 2017-18 -- $5/kg plus.

Dairy is experiencing a second season in a row of healthy prices.

“But it does follow those two very low seasons where the milk price was about $4/kgMS and dairy farmers were losing considerable amounts of money.”

ASB expects a season payout about $6.50/kgMS, slightly higher than Fonterra’s current forest of $6.40/kgMS.

Penny says most dairy farmers are “back in the black”. Last season any extra was going straight back into overdrafts, etc with little new spending. This season farmers will be looking at deferred maintenance and other spending they back away from in the “skinny seasons”.  “Things like animal health would definitely be coming back onto the radar this season.”

Price forecasts for next season are similar to this, so farmers may increase spending on higher priced items.

Global dairy markets are balanced, demand is holding and butter is still short globally.

More than dairy

In the early 2000s all the growth was in dairy, but now the agricultural sector is much more crowded, says Penny

There is much more competition for resources – land, water, people and funding.

Lamb and beef have enjoyed two very good seasons, kiwifruit has had a record season due to the Gold recovery and the next season will probably also be a record, forestry prices are very good due to the construction boom overseas, the apple export season is again a record high, wine is ticking along nicely and even avocados are doing well, he says.

“A much more crowded sector, which in a way is very healthy.”

He says it is possible the highest-returning land use will be a sector other than dairy -- unlike the early 2000s.


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