Pricing holds firm

Milk flow strength is a mix of favourable weather in February and March, in combination with weak production comparables for last year, as milk production took a hit with hot weather.

We anticipate New Zealand milk collection for the current 2020/21 season (ending 31 May 2021) to land around 2% higher than the prior period. Global commodity prices remain in a holding pattern at elevated levels. Chinese purchasing has remained robust, fuelled by the rising cost of locally produced milk and ongoing economic recovery against a backdrop of a better than expected finish to New Zealand's season.

Beef

Raboresearch expects farmgate prices to hold steady during May, with the reduced competition from Australia assisting New Zealand product in finding a home with the change in seasons in the US.

Farmgate prices showed signs of life and nudged upwards for April 2021. Cattle slaughter in Australia continues to remain low livestock inventory.

East coast kill rates for the first four weeks of April 2021 were down 30% YOY and down 35% on the five year average.

Lower production volumes have flowed through to export volumes, which were lower by over 10% for March 2021 YOY.

New Zealand farmgate returns have benefited from less competition from Australia in key markets particularly the US. US demand for manufacturing beef has lifted in line with the changing of the seasons, with some warmer weather bringing out the barbecues. These dynamics will continue over the next month, helping to maintain New Zealand farmgate prices.

Sheepmeat

Demand for sheepmeat from China hit a new level for March 2021.

New Zealand shipments of lamb to China reached the highest level for any March, with 23,445 metric tons of lamb exported. Export volumes for March 2021 were 27% higher when compared to 2019 export volumes and 57% higher than the prior four year average.

A quiet European and UK market post Easter, with lower Australian supplies, has resulted in more product being directed towards New Zealand's largest sheepmeat market in order to meet demand.

Upside potential for farmgate returns remains over the coming months. Prices are likely to see some upside as we move through into the seasonally tighter supply period and procurement pressure continues to build particularly in light of recent store lamb demand.

We expect the continued strong demand from China, in combination with lower competition from other export markets, to ensure firm farmgate prices through May 2021.

Climate

NIWA is forecasting near-average or above-average temperatures for most of New Zealand through to the end of July 2021.

The east coast of the South Island is likely to have average temperatures over the coming three months.

Rainfall levels are anticipated by NIWA to be near-normal for the top of the North Island. The remainder of the country is likely to receive below-normal or near-normal rainfall levels through to July 2021.

NIWA is forecasting near-normal soil moisture levels in both the north and west of the North Island, with below-normal soil moisture likely for the east coast of South Island.

Exchange Rate</strong

The NZ$ rose 2.6 cents against the US dollar in April and was trading at USc 71.57 on May 5.

The US$ itself retreated against most currencies during the month, on the back of a softening in treasury yields. The NZ$ also received support from strong data suggesting that the Chinese economy is growing strongly and on rising commodity prices. However, economic uncertainty elevated and divergences in economic growth both within and between countries are significant.

The Reserve Bank left interest rates unchanged at 0.25% at its April meeting.

We expect the NZ$ to trade at around USc 71 to USc 72 in coming months before a modest rise towards USc 74, 12 months from now.