This slowdown, however, has not impacted the underlying consumer demand for protein-based foods in these economies. It has also been offset by recoveries in our traditional export markets such as the United States and Europe.
International supply and inventories of agricultural commodities remain tight, especially in meat and dairy, underpinning continued support for our key export products. There are good signs for beef exports as the uncertainty over the supply of US beef has supported an improvement in demand for NZ beef, which bodes well for the NZ bull kill coming up in November.
Indonesia recently announced changes to its beef import policy, which in place of import quotas allows beef imports once local Indonesian beef prices rise above a certain level. The current level of high prices in their market has led to an increase in NZ beef export orders to Indonesia.
Meanwhile, beef supply out of Canada has been limited and growing Chinese demand is absorbing the Australian beef supply.
In the US, cow slaughter is down about 15% on year-ago levels, as the improvement in pasture conditions and expectation of a rebound in calf prices are encouraging farmers to retain their herds. Prices back home have finally cracked the 400c/kg mark with the North Island bull indicator averaging 407c/kg for the first week in September – 3% higher than in the same week last year.
Beef + Lamb NZ forecasts the 2013 lamb crop to be 24.4 million – down about 2 million head (-7.7%) on the previous season. If confirmed, after this year’s lambing is complete and numbers tallied, this would be the lowest NZ lamb crop since 1955. September kill figures will also show how many extra lambs were killed out of the replacement flock due to drought conditions.
Better growth indicators in the UK and stabilisation appearing in Europe make good reading for an improvement in export demand; lamb exports to China are also continuing to push higher. Chinese consumers are acquiring more taste for lamb products, trending away from cheaper frozen meat to more expensive cuts, adding to overall returns. This is all positive for lamb prices, expected to rise well above the previous session numbers.
Dairy prices have been stable over the last few months; the wholemilk price has increased only 0.5% since the start of August as opposed to a decrease of -8.3% since the start of May and an increase of 55.1% for 2013 as a whole.
Fonterra has increased its forecast farmgate milk price for the 2014 season by 50 cents to $8.30/kgMS. The increase, plus an estimated dividend of 32 cents per Fonterra share amounts to a forecast cash payout of $8.62. Increasing production supply will eventually result in dairy auction prices retracing part of their recent gains and prices are likely to consolidate near current levels over the next few months moving into the end of the year
However, the complete picture for dairy prices in 2013 is expected to be bright. With dairy already accounting for at least 25% of our merchandise exports, elevated prices year-on-year will give a worthwhile boost to overall annual merchandise export receipts.
The 0.2% rise in GDP for the second quarter of 2013 was weak, but this figure was heavily affected by the drought and did not fully represent the economic outlook. Leading indicators suggest the stage is set for stronger growth in the second half of 2013; exporters will hope the Kiwi dollar doesn’t hitch a ride on the back of this growth and erode overall returns.
