Exportable supply has been rising globally since September as producers respond to improved milk prices but demand from China is expected to keep growing in 2014.
“A strong Northern Hemisphere production season on the back of an exceptional season in the Southern Hemisphere (particularly in New Zealand) is expected to generate more than enough exportable supply to exceed [China’s] additional needs in the first half, 2014, loosening the market somewhat – eventually,” Rabobank’s monthly agribusiness report for New Zealand and Australia says.
Rabobank expects prices to hold at current highs before easing in the second half of the year. But China remains a “wildcard”. “If Chinese milk production continues to fall in 2014 (rather than stabilise), import growth is likely to again exceed market expectations, which would provide further support to global prices.”
In New Zealand the current season has been an unusual combination of record high farmgate milk prices while climatic conditions have boosted milk flows. Full season production is likely to be up by about 8%.
“Existing and new processors are turning their attention to building new capacity. Powder drying, nutritional/IMF and UHT capacity is set to increase at multiple sites over the coming 12-18 months.”
In terms of the global beef market, everyone is looking to the skies in 2014 as much-awaited rain will determine how well it will perform, says Rabobank.
Demand for New Zealand and Australian beef is expected to be very strong in 2014. The US herd is still rebuilding after years of drought and China is also predicted to be a strong buyer, Rabobank says. However re-entry of the US and Brazil will increase competition, though the product is still already in the marketplace re the grey channel.
Sheepmeat supplies are forecast to contract in 2014 in Australia and New Zealand with lamb numbers likely to be back 2-2.5 million head. Farmgate prices should improve compared to 2013 towards the five-year average level.
“The challenging year continues to impact farmer confidence, with lacklustre ewe sales in New Zealand highlighting this,” says Rabobank.
The emergence of China as the largest export market for Australia and New Zealand was a bright spot in 2013, but consumer willingness to pay will be tested in 2014 as supplies tighten. Export trade to EU and UK improved throughout last year. “Consumption and retail sales improved steadily throughout the year, with optimistic signals for 2014 suggesting this will strengthen,” the report says.
“Local processors in New Zealand have been cautious to offer steady farmgate prices that can be passed on to consumers in the key overseas markets to avoid the issues of buyers [buying less], as we saw at the end of 2011 and the start of 2012.”
New Zealand’s wool exports for the 2012/13 financial year increased 15% but the total export value declined 13% or
$100 million on the previous year because of subdued international demand, a firmer NZD and strong volumes.
New Zealand wool production is forecast to decline by 2.3% in 2013/14. Tighter supply and good global demand for strong wool should see New Zealand wool prices improve in 2014, says Rabobank.
The Australian wool sector last year reduced its reliance on China, exporting more to the Czech Republic, India and Italy, this being predicted to continue in 2014.
