Dairy prices down as are costs
Dairy prices are easing but cost inflation is down across the board, providing some relief to farmers.
But Westpac head of agribusiness David Jones says things should improve towards the end of the year.
"We are clear the commodity prices will come off," he told Rural News. "We will see a bit of the dip, but we are expecting a second half-of-the-year recovery.... When commodity prices come off the dollar comes off which actually helps put a bit of a buffer around the return to the farmer."
However, farmers can be at the mercy of how well the processors hedge the currency, he notes.
"If they get it wrong, you can have double dip pain which goes back to the farm gate."
Other markets stepping up production when commodity prices are high can also in turn bring those prices down, which has happened in dairy.
For most nations the domestic market dominates, but any surplus comes onto world markets and will soften the commodity price. "So it's a watching brief; you never know what's around the corner."
Climate issues also have a big influence on supply, but again New Zealand has an advantage in offering stable supply, particularly in dairy.
Sheep farmers are this year building up capital stock with the good grass growing conditions, after several years drought. That's constraining lamb supply.
But the European market is "doing it tough," he notes. "So the orders have dried up. But you also have an emerging market in Asia.
"That's slowed down – their bubble has burst – but that will correct in the second half and we will start to see them buying again. It's a hiccup."
