Leaky waka
OPINION: Was the ASB Economic Weekly throwing shade on Reserve Bank governor Adrian Orr when reporting on his speech in Washington recently?
These are just some of the questions posed in the latest Rabobank Agricultural Outlook for 2024. It says that the New Zealand ag sector will have to ride the wave of change in the coming year, pointing to the three key areas mentioned above, all of which have implications for farmers.
The question, says one of the authors of the report, senior agricultural analyst, Emma Higgins, is will the waves of change be relatively smooth or will the sea be choppy? She says success in navigating the year will depend on people having a strategic mindset, agility and collaborating - something that NZ farmers are well practised at.
Higgins says it's likely the Reserve Bank will hold off official cash rate cuts until the second half of the year and then the cuts will be modest. She says wholesale interest rates have eased back since Christmas and are flowing through to retail, meaning good news for those with loans and mortgages.
"The second undercurrent NZ agribusiness could face in 2024 will be the Chinese market which is expected to create a challenging course for exporters.
"This is our key export market and is likely to continue to have a slow economy this year. This is due to property price pressures, weak consumer confidence, dwindling demographics, and lethargic global consumer demand for Chinese exports," she says.
Higgins says this doesn't bode well for strong commodity prices for New Zealand food and fibre export products which are heavily reliant on China.
The other major challenge for NZ agri is the geopolitical situation with wars in Ukraine, Israel and Gaza and attachs on ships trying to go to the northern hemisphere via the Suez Canal. The latter problem could see a rise in freight rates to and from NZ. On top of the conflicts, there is the looming threat or political uncertainty among some of the economic superpowers, such as the EU, the US, India and Russia, who all have elections this year. Higgins says some of our key trading partners, the UK, Korea and Indonesia, also have elections.
"Closer to home, we have the new coalition Government settling in with priorities still being decided," she says.
She says what happens with the weather in NZ will create another ripple of uncertainty. She says the message to farmers is to keep a close eye on feed supply and quality, and stocking rates heading towards winter.
"Sustainability and emission reductions will remain a key theme for the sector in the years ahead," she says.
Commodities Outlook
Emma Higgins has put out a few predictions about the outlook for individual commodities for the coming year:
- Dairy - While dairy commodity prices are back to long-term averages, current fundamentals provide the perfect ingredients for price volatility to be a key theme for 2024.
- Beef - Rabobank expects resilient beef pricing in NZ over the next 12 months with good demand forecast from the US.
- Sheepmeat - This remains a subdued waiting game for 2024 but there is hope that the second half of the year will see a more positive upward correction in pricing.
- Horticulture - The kiwifruit industry is expecting a year of record returns as progress has been made to improve fruit quality over the past few years.
- Farm inputs - After a few seasons of persisting rising prices, the coming year will see a reversal in the trend and lower costs from fertilisers and agrochemicals are expected.
