Trade balance with the US a saving grace
New Zealand is so far escaping the unpredictable vagaries of President Donald Trump's trade policies by the skin of its teeth.
Since peaking in Q2 2022, commodity prices have been losing momentum.
Average commodity prices have fallen between 20% to 30% from their mid 2022 peaks, depending on the product.
The weaker fundamentals are expected to keep a lid on any major price recovery in the near term, with Chinese imports remaining cautious alongside broader demand rationing in other markets.
RaboResearch has also lowered its forecast to NZ$ 8.50/kgMS for the full 2022/23 season. However, we think upside price potential remains possible, with China anticipated to show more buying interest from Q2 2023.
Beef
RaboResearch anticipates that the beef schedule will hold around current pricing levels in March, but there is potential upside.
The North Island bull price held at NZ$ 6.65/kg cwt through January and February, which is NZc 52 above the five year average price.
The suspension of Brazilian beef exports may provide some pricing support for New Zealand beef exports, but it depends on two things: how long the suspension lasts and how quickly reported high beef inventories in China are worked through.
Although there are reported high beef inventory levels in China, we do not think it is cause for concern.
Demand for New Zealand beef from China continued to grow through 2022 New Zealand export volumes grew 5%, and the average export price lifted 27% YOY (or NZD 2.00/ kg FOB).
Sheepmeat
Export prices have been picking up, but lamb is not out of the woods yet. The South Island lamb price stabilised through February at around NZ$ 6.60/kg cwt.
We anticipate that there could be some further downside for the lamb schedule through March as more lambs come forward for processing. Farmers have been holding lambs longer to capitalise on good feed levels by adding a few extra kilograms to compensate for softer schedule prices.
However, the combined effect of lambs being held longer, plus Southland and Otago being very dry, is that we can see a large number of store lambs and prime lambs hitting the market in March. Processing capacity is not currently an issue in the South Island, but with more lambs likely to come forward in March, a few more cents could come out of schedules.
Farm Inputs
The fertiliser market is currently stuck in a stalemate between buyers and sellers.
The downward price trend is continuing (except for potash) and offers are struggling to find markets. The reason for this is the uncertainty, or caution, about how prices will behave after the spring buying period kicks off in the Northern Hemisphere and volumes start rolling again.
For early 2023, the supply-and-demand seesaw is favouring global stocks of fertilisers, as companies’ 2022 performance reports confirm.
The input prices doldrum, however, may not last too long, as evidenced by agrochemicals. Since prices peaked in late 2021, they have shown a gradual reduction, and some are now stabilised, such as the Chinese glyphosate 62% concentration reference, which dropped by over 40%.
For this input, the price has been hovering around the same mark – NZ$ 5,700/tonne –for the last four months.
Interest and exchange rates
The devastating impacts of Cyclone Gabrielle should have implications for monetary policy going forward.
The RBNZ says inflation is likely to spike in the short term, but it is too early to tell what the full effects may be. Rabobank maintains its view of a further 50 bps hike in April, followed by 25 bps in May.
The NZD lost more than two cents against the US Dollar in February to be trading around the 0.6240 level.
The story here is not so much weakness on the part of the NZD, but rather strength for the USD, which has been bid up by FX traders who are betting that the US Federal Reserve will need to increase rates further, and hold them higher than was previously anticipated.
We see NZD/USD recovering to 0.66 on a twelve-month view.
