Rising to the challenge

Underlying fundamentals have soured as milk supply recovers across much of the export engine and at a time when Chinese importers are more cautious with purchases.

Rabobank anticipates the start of the new season will likely see some improved pricing however, farmgate milk price opening forecasts are likely to be less optimistic than last season. term.

Any potential upside rally hinges on a supply shock out of the Northern Hemisphere or a meaningful recovery in Chinese demand.

Beef

Global beef pricing will be shaped by converging pressures in 2023; tightening global beef supplies and weakening consumer demand.

It is not clear whether supply or demand side pressures will be the stronger force, however, tight beef supplies will provide an elevated pricing floor for the farmgate beef price in New Zealand.

Demand from China is likely to show recovery from Q2, as it emerges from the economic effects of widespread lockdowns in 2022.

In the US, a recessionary environment is expected to drive up the consumption of lower value cuts such as mince, supporting demand for New Zealand lean trimmings. RaboResearch anticipates that the North Island bull price will remain above the five year average price of NZ$5.50/kg cwt in 2023, but is not likely to return to the highs seen in 2022.

Sheepmeat

The tidal wave of demand for sheepmeat, and the subsequent surge in pricing seen in 2022, is now being sucked away by weaker economic conditions in New Zealand’s key markets and by increased Australian lamb supplies.

The widespread lockdowns in China which reduced sheepmeat demand in 2022 and negatively impacted NZ export values, are over.

Modest economic recovery is forecast in China in 2023 RaboResearch forecasts GDP to increase 4.2% however, a far cry from the 8.1% growth achieved in 2021.

Demand for mutton and lamb is expected to remain weaker in the first half of 2023. In New Zealand’s other key sheepmeat markets the UK, Europe and the US recessionary conditions will continue to impact both foodservice and retail channels.

Venison

The worst is now behind the deer industry, with the venison schedule showing steady recovery through 2022, from the Covid induced lows of 2020.

Increased demand from the US and China were the key drivers behind the lift in farmgate returns.

In the US, the reopening of the foodservice sector drove a lift in import demand, but a surge in home cooking and general demand for animal proteins also helped to lift venison sales via retail. In China, ongoing efforts to develop a premium consumer market are paying dividends, with the average export value lifting 10% YOY to NZD 16.75/kg.

A favourable exchange rate also helped to buoy returns. RaboResearch expects that the farmgate venison price will remain resilient through 2023, but further growth in the short term could be hampered by tough economic conditions in the US, China and Europe.

Inflation and exchange rate

With inflation A favourable exchange rate also helped to buoy returns. RaboResearch expects that the farmgate venison price will remain resilient through 2023, but further growth in the short term could be hampered by tough economic conditions in the US, China and Europe.

Another hike is expected in late February. Wage inflation is likely to remain buoyant and that the RBNZ has more work to do to stem inflationary pressures.

We see the potential for NZD/USD to dip back to its January low in the 0.62 area on a three to six month view.

However, we expect NZD/USD to end the year on a stronger note.