Dairy buoyant
The Rabobank Rural Confidence Survey found farmers' expectations for their own business operations had also improved, with the net reading on this measure lifting to +37% from +19% previously.
Global commodity markets have continued to soften in March. There were falls across all products except butter.
All products are now between 30% to 40% lower than at the same time last year. The weaker fundamentals are keeping a lid on any major price recovery, with Chinese imports remaining cautious alongside broader demand rationing in other markets.
Softer commodity prices are seeing forecast milk prices tumbling. Fonterra have trimmed the pay outrange for 2022/23 for the second time this calendar year, to NZ$8/kgMS to NZ$8.60/kgMS.
The new mid-point for the 2022/23 season sits at NZ$8.30kgMS, down from NZ$8.50/kgMS.
Beef
Total processing numbers continue to track behind for the season, with colder temperatures impacting cattle growth rates in many areas, plus the disruption caused by Tropical Cyclone Gabrielle.
In particular, the North Island bull kill at the start of March was sitting 31,000 head (or 11.6%) behind year-on-year.
With the sudden switch to cooler temperatures in March, more cattle are being prompted to come forward for processing. Additionally, cull dairy cows are starting to flow, with the South Island cow price dropping NZc30 through March. February beef export volumes were steady, sitting 2% higher YOY.
Total export earnings were back 18% YOY, with returns on exports to China and the US back 15% and 19%, respectively.
RaboResearch expects schedule prices will remain around current levels through April, as three short processing weeks and a lift in cows and prime cattle will mean processors are not likely to need to bump prices up to keep plants full in April.
Sheepmeat
The lift in lamb schedule through the first three months of 2023 have been welcomed by farmers. However, the export numbers continue to paint a messy picture in New Zealand's key markets.
February sheep meat export volumes were back 10% YOY and earnings were back 27% YOY. China and the US provided some bright spots - Chinese imports lifted 4% YOY and US import volumes grew 8% YOY.
While China's reopening has resulted in a lift in volumes, export earnings continue to be hampered by a slower Chinese economy.
The average export value to China in February was NZ$6.27/kg FOB, which was NZ$1.70 lower than the average for February 2022.
The US was the only market where export earnings increased year-on-year, underpinned by continued demand from the high-end foodservice sector.
Farm Inputs
Urea prices dropped 22% MOM in January, 9% in February, and 9% in March, for a total decline of 36% in Q1 2023.
DAP showed a similar though lesser fall, dropping 8%, 4%, and 5% MOM per respective month, totalling a 15% drop. For farm inputs, one of the main causes is that natural gas prices for manufacturers are 'stable', compared to 2022's volatility.
The short-term contract for Dutch TTF natural gas is down 48% since 1 January 2023, to EUR low-40s/MWh, with a forecast trade value of around EUR 60/MWh for Nov 23. This is 50% less than the Nov 22 value and under one-fifth of the Aug 22 peak. The price surges from the Russia- Ukraine war are gone. There are few signs, if any, of nitrogen fertiliser prices bouncing back soon.
Interest and Exchange Rates
RBNZ surprised the market with another 50bps increase, while expectations were calling fora 25bps rate hike at the 5 April meeting. Inflation is still considered too high.
This is despite some ugly economic data released during the month of March showing that the Kiwi economy contracted by 0.6% in the Q4 2022 and also notched up its worst current account deficit since 1988. RBNZ itself was forecasting growth of 0.7% in the quarter.
That made the 0.6% figure look particularly ugly and saw market expectations of the future path of the Official Cash Rate adjusted lower. The poor current account data prompted a warning from S&P Global Ratings that New Zealand could find its credit rating downgraded. If that were to come to pass, it would result in higher cost of debt for the New Zealand government, banks, and businesses. Despite the bad economic news plus an offshore banking crisis weighing on broader risk sentiment the New Zealand dollar managed to eke out a gain of USc 0.73 against the US dollar in March and it gained further following the RBNZ rate hike decision. The Kiwi dollar ended the month at 0.6258 and is well poised to continue the run as jitters about the banking crisis in the US seem to be abating and markets tilt back toward optimism.
