Rabobank flags rising global dairy prices, warns of downside risks ahead
While global dairy commodity prices continue to climb in most key exporting countries, the second half of the year is expected to bring increased downside risks.
It says despite rising downside risks, the New Zealand agricultural sector is poised for a third consecutive year of broad-based profitability in 2019.
Favourable production conditions and strong commodity pricing are likely to continue throughout 2019 and these factors, combined with an anticipated weakening of the New Zealand dollar, would set up a further profitable year for farmers across New Zealand’s major agricultural sectors.
However, while the report’s primary forecast is for a positive 2019, it cautions that downside risks – particularly those relating to New Zealand’s major off-shore markets – are mounting and have the potential to de-rail the industry from its unusually long winning streak.
Releasing the report, Rabobank New Zealand Country Banking general manager Hayley Gourley says many of the factors which played out in New Zealand farmers favour during 2018 were set to extend throughout the coming year.
“The weather has been highly favourable for the agricultural sector in recent months and the outlook for the foreseeable future looks benign. Commodity prices for New Zealand’s main agricultural products are also strong at the moment, and, while prices for some commodities are set to soften modestly in 2019, others should strengthen,” she said.
“In addition, we expect the New Zealand dollar to drift lower over the course of the year, bringing the prospect of the lowest average annual exchange rate against the Greenback seen this decade.”
Gourley said the agricultural sector’s sensible use of profits in recent seasons was a further factor which had positioned the industry for a strong showing in 2019.
“As foreshadowed last year in this report, it is important for New Zealand agriculture to spend money wisely during any good run of seasons. Fortunately the industry appears to have done this of late with strong collaboration between industry and government helping advance market development opportunities and to put the industry’s house in order locally,” she said.
“We’ve also seen many farmers focus on reducing debt rather than increasing land holdings, and this has helped avoid a further land price escalation.”
The report says the stagnant land market was one unusual aspect of the New Zealand agricultural sector’s recent run of strong seasons.
