NZ remains lowest-cost milk producer - report
The cost of producing milk in New Zealand continues to compare favourably with other exporting regions despite a lift in production costs over the past five years.
The agribusiness banking specialist says the current strict lockdowns in many major cities in China - as the country tries to eradicate Covid - are not only affecting its local citizens, but also having flow-on impacts on trading partners, including New Zealand.
RaboResearch general manager for Australia and New Zealand Stefan Vogel says there are four specific impacts of the lockdowns that are set to have increasing ramifications for New Zealand agribusiness: disruptions to freight logistics, Chinese corn plantings, dairy demand and hog pricing.
"The already-stressed global container logistics situation is becoming more complicated due to massive delays around the Shanghai port," Vogel explains.
He says prices paid for the transport of dry bulk materials increased five-fold through 2021 as a result of Covid lockdowns in different parts of the world. Vogel adds that while these prices have dropped from the September 2021 highs, the ongoing lockdowns in China will add to continued container logistics issues and keep container freight prices well above historic levels for 2022 and well into 2023.
Meanwhile, he says disruptions to corn plantings in China - the world's second-largest corn producer and also the world's main corn importer - are complicating already extremely tight global grains markets.
"Chinese corn planting faes delays in two key provinces - responsible for 20% of the country's crop - as some farmers are trapped in major cities and are unable to access their fields due to the Covid lockdowns."
However, Vogel concedes these delays in planting Chinese corn are not the biggest driver of current global grain prices.
World corn prices hit a 10-year high in April this year, primarily driven by concerns about a dry season in Brazil and below-normal rainfall forecast for the next three months, which could reduce Brazilian corn yields.
"There are also cool and wet conditions for corn planting in the US and an expected reduction of about 50% in Ukrainian corn production in 2022, putting upward pressure on global grain prices."
Meanwhile, Vogel points to the spread of the Omicron variant and China's "zero-Covid" policy bringing strong headwinds to the country's food service sector.
"Dairy demand in food service is slowing in China while, according to our calculations, dairy products in China produced from imported Oceania whole milk powder (WMP) are now more expensive than those from locally-produced dairy for the first time in eight years."
Vogel says after a record-breaking 2021 in milk powder imports by China, the demand uncertainty from Covid restrictions is likely to dampen the country's import appetite in 2022.
In addition, China's Covid restrictions have resulted in a big drop in food service sales of meat products, which have impacted hog production and prices, Vogel adds.
"Chinese hog producers have liquidated herds to avoid further losses, imposing further downward pressure on Chinese pork prices which can also impact China's feed grain import needs.
"This also has potential implications for Chinese beef and sheepmeat demand."
He says while retail prices in China for both beef and lamb are currently at record highs, New Zealand exporters will be keeping a close eye on how demand for these products hold up, "as consumers potentially look to trade down to pork and other cheaper animal protein alternatives."
