Thursday, 28 April 2022 06:55

Demand remains strong

Written by  Content supplied by Rabobank

Dairy

Farmgate milk prices have followed commodity prices higher worldwide, with some potential upside in some regions.

Still, the rising costs of inputs, lack of labour, unfavourable weather, and variable feed quality and prices continue to limit the production response by producers. New Zealand milk production is likely to end the season well down on the prior season, as Southland continues to look for meaningful rain, while parts of the Waikato could also do with a drink of water. Dairy commodity prices will likely remain elevated through mid-year amid the constrained global supply picture. The longer-term outlook hinges upon consumer behaviour and normalized market conditions, both being very unpredictable.

Beef

Record high North Island bull pricing has continued through March - despite significant processor backlogs and absenteeism, which create inefficiencies and added cost to processing. The North Island bull price held steady at NZ$ 5.90/kg cwt through March - NZD +71c ahead of the five-year average in the last week of March. Constrained global beef supply is continuing to support very high export pricing and demand. Beef exports in February 2022 followed the same pattern as in January 2022 - volumes were back but overall value was higher. Additionally, Covid-related lockdowns in China are continuing to cause port and logistics challenges, plus the closure of foodservice in some regions is reducing demand. The usual overlap in prime beef and cull cow kill is being further exacerbated by Covid and dry conditions in Southland and Otago. Congestion and processor backlogs are anticipated for the remainder of this season. As of week 21, of the 2022 season (26 February), the South Island cow and bull kill was -10.5% and -11.4% behind YOY, respectively. RaboResearch anticipates farmgate beef pricing will continue to remain elevated through April, supported by constrained global demand.

Sheepmeat

The climatic extremes of this season in combination with processing challenges, has impacted both the lamb and mutton kill. As of week 21 (26 February), the national lamb kill was -10% behind YOY and the mutton kill was back -11% YOY. NZ monthly exports to the UK peak in February to meet Easter lamb demand, but shipping logistics have meant that export volumes were back -5% YOY. UK importers have switched to buying frozen product as opposed to chilled meat to mitigate the risk of shipping delays. Exports to the US also fell considerably (-18%), due to a reduction in both chilled and frozen exports. Shipping routes to the US remain congested and strained.

Despite the disruption caused by Covid and shipping logistics, export earnings for sheepmeat remain strong. High export prices are flowing through to record farmgate pricing. The South Island lamb price in the last week of March was NZ$ 8.15/kg cwt, which is NZ$ 1.71 ahead of the five-year average price.

RaboResearch anticipates the South Island lamb price will continue to remain elevated through April.

Fertiliser

Unfortunately for local farmers, we think it is unlikely any significant price relief will be felt before the end of this winter and spring. The primary driver of high fertilizer prices will continue to be the war in Ukraine, on both the supply and energy front. Russia, once responsible for 21% of global potash (MOP) exports, 14% of global urea exports and 14% of mono-ammonium phosphate (MAP) exports, has all but ceased exports of fertilizer. Difficulty in obtaining the product due to Russia's export ban is only half the challenge; finding vessels and insurance is also very difficult. EU natural gas prices stabilised in recent weeks, which should help to steady nitrogen prices in the short term. With prices even higher than last year and impacts from the war in Ukraine. While locally-produced urea will soften supply risk to some extent, we see it as important that local farmers account for the supply risk and remain close with their suppliers.

Exchange Rate

The NZ dollar has performed well since the start of the war in Ukraine. Higher prices for agricultural commodities, including dairy, have been supportive and a positive boost to New Zealand's terms of trade. Tightening by the RBNZ can be expected to further underpin the outlook for the NZ$. That said, despite the strength of the economy, there are clouds on the horizon, with higher prices and interest rates starting to impact. Overall, we expect NZ$/US$ to remain well supported. The NZ dollar currently trades at USc 0.69, higher than a month ago when NZ$ stood at 0.67. We expect NZ$ to trade at 0.70 on a three-month view.

More like this

China lockdowns hit dairy demand

Covid restrictions in China are likely to slightly dampen milk powder imports into that country, according to Stefan Vogel, Rabobank research general manager for Australia and New Zealand.

Future peachy for NZ kiwifruit

A recent global report says the outlook for the NZ kiwifruit sector remains strong due to expanding kiwifruit consumption in Asia, the EU and the US.

Editorial: Great place to work!

OPINION: A recent report on remuneration for farm workers shows the great strides dairy farmers have made over the years.

Tunnel houses to teach children food production

Rabobank has donated tunnel houses to eight primary schools from across the Southland region as part of an initiative to help educate about growing food, sustainability and reducing waste.

Farm workers' salary, perks rising

Federated Farmers president Andrew Hoggard says recent findings from a Rabobank report are another reason why New Zealanders should consider a career in agriculture.

National

Live export experts ignored

National's animal welfare spokesperson Nicola Grigg claims the Government completely ignored compelling evidence from cattle breeders, vets and export industry…

Machinery & Products

A new approach to apprenticeships

By taking a new approach to its apprenticeship programme, agricultural equipment supplier Norwood says it is ensuring farmers’ machinery will…

Buck-Rake does the job

With many self-propelled forage harvester manufacturers offering machines hitting 1000hp, the bottleneck in any harvesting system is always likely to…

Pigtail standards made to last

Feedback from farmers highlighted frustration at the time and cost involved in frequently replacing failed pigtail posts.

» The RNG Weather Report

» Latest Print Issues Online

The Hound

Say what?

OPINION: This old mutt almost choked while chewing his bone when he happened upon the latest politically-correct advice that’s been…

Why bother?

OPINION: A mate of the Hound’s recently applied for membership with Ashburton-based farm supply co-operative Ruralco.

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter