Global commodity prices have enjoyed a period of strength in September. Overall, the global market fundamentals remain well-balanced, but with several moving parts.
Dairy commodity prices were mostly softer through June 2021.
Falls were minimal across the complex and prices are still trading at elevated levels when compared to year-ago levels. The NZ dollar was weaker in June compared to the month prior - good news for dairy exporters. Markets are awaiting the season to get underway over the coming months.
Final NZ milk production numbers are in for the 2020/21 season. May 2021 milk flows bounced 7.6% higher than last year on a tonnage basis, driven by a combination of high milk price forecasts, supportive weather and low comparables from last year's drought in the North Island.
This brings the full season production through to 31 May 2021 to 22.3m metric tons - a lift of almost 3% on the prior season and the highest volume of milk produced in NZ. Rabobank forecasts milk production for the new 2021/22 season to be marginally higher on the assumption that Q4 2021 milk flows will surpass 2020 volumes.
Raboresearch expects farmgate prices to lift over July, with a strong US market helping to drive returns at the farmgate.
However, shipping firmly remains an issue and is taking some of the shine away from historic high imported beef prices. Records continue to be broken across the ditch in Australia, with cattle prices remaining exceptionally strong and the EYCI rising to a new record in late June 2021.
These dynamics have flowed through to higher farmgate price movements here in New Zealand.
US beef prices have extended gains over recent months, as demand improves with economic reopening. Food service continues to pick up in the US and expectations are positive and have lifted further over recent months. Chinese demand continues as African Swine Fever drives demand for alternative protein. Global beef supplies have been limited with a 30-day Argentine export ban only adding to the tightness stemming from herd rebuilding in Australia.
Domestic beef prices have been edging higher and are at a solid level.
Raboresearch expects continued demand from key markets as we move through the winter months here in New Zealand, and we anticipated this will lift prices through July.
Farmgate prices have seen a jump over the month, in line with seasonal tightening of product availability.
Domestic lamb prices have lifted over recent months. Some of this is seasonal, but there is more to it than that. International markets have improved, with buoyant demand from China and more interest from the UK and Europe. Fewer NZ lambs has kept the supply side tight, while recent weather raises questions around this year's lambing. International prices have lifted while the NZ dollar has remained reasonably contained. There is growing optimism for higher average prices next season, although supply chain challenges and rising costs need navigating.
NIWA is forecasting above-average temperatures for most of the South and North Islands across the winter months. Rainfall levels are anticipated to be near-normal for the top of the North Island, and the north and east coast of the South Island.
The east of the North Island is likely to receive either near normal or above-normal rainfall. The west of both islands are likely to receive below-normal or near-normal rainfall levels through the winter period of 2021. NIWA is forecasting near-normal or below-normal soil moisture levels in both the north and east of the North Island, as well as most of the South Island. The rest of the country is forecast to have near-normal soil moisture levels through to August 2021.
Despite the relatively hawkish sentiment of the RBNZ, the NZ dollar was not immune to the mid-June FX market shakeout. The New Zealand dollar lost 2.5% against the US dollar over the month, trading at USc 70.07 on June 28.
However, the shakeout for the NZ$ would likely have been greater, without key hawkish announcements from the RBNZ during June and better-than-expected domestic GDP data.
RBNZ resumed publishing its Cash Rate forecasts this month, which showed a first 25 bp hike in Q3 2022.
This was coupled with the release of much stronger than expected Q1 GDP data for New Zealand at 1.6% QOQ vs. a median expectation of 0.5% QOQ, Rabobank's outlook remains unchanges, with expectations for the New Zealand dollar to recover to the USc 74 range over the six-month outlook, where we expect it should remain on a 12-month view.