Chinese strategy
OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.
New Zealand commodity prices are likely to feel downward pressure over the year, says ASB senior rural economist Nathan Penny.
In his Commodities Weekly report, Penny says 2019’s more modest outlook follows relatively positive prices over 2018.
The average level over 2018 was comfortably above the 10-year average in both USD (+4.7%) and NZD (+12.3%) terms.
However, economic growth in NZ’s major export market, China, is slowing, and Penny expects this slowing to lead to more modest demand for NZ’s commodities.
“Recall that China accounts for around a fifth of NZ’s overall goods exports and larger amounts for the log, dairy and sheepmeat sectors,” he says.
Moreover, NZ agricultural production is booming, with the extra supply also weighing on commodity prices.
Penny notes that in particular, spring 2018 weather was surprisingly good and the weather has continued in this vein so far this summer. As a result, agricultural production is likely to remain firm over coming months.
“For example, we expect record-high dairy production this season. Indeed with the bumper dairy production in mind, we revised down our 2018/19 milk price forecast twice late last year.”
Meanwhile, the global economy is also slowing, hinting at a broader slowing in demand for NZ export commodities. In the US, the trade tensions with China combined with rising interest rates are causing financial market volatility. While over the Atlantic, ongoing Brexit concerns are weighing on the UK and European economies.
Despite these headwinds, there are positive offsets in play, says Penny.
“First up, the NZ dollar is at a supportive level and likely to mostly stay that way over 2019. As a result, commodity prices in NZD terms, if not USD terms, are still likely to remain above long-term averages.
“Also, while overall Chinese economic growth is slowing, we expect the household sector to hold up better than the industrial and export sectors.”
A governance group has been formed, following extensive sector consultation, to implement the recommendations from the Industry Working Group's (IWG) final report and is said to be forming a 'road map' for improving New Zealand's animal genetic gain system.
Free workshops focused on managing risk in sharefarming got underway last week.
Annual farmer gathering, the South Island Dairy Event (SIDE), is set to make history as it heads to Timaru for the first time.
Installing 400 solar panels at their Taranaki piggery and cropping operation will have significant environmental, financial and animal welfare benefits for the Stanley family.
WoolWorks, New Zealand’s largest wool-scouring company, has partnered with the Lions Club of Riverton to help raise money for much-needed repairs to the Southland town’s swimming pool.
OPINION: The dairy industry will be a major beneficiary of a new free trade deal between NZ and the Gulf Co-operation Council (GCC).
OPINION: Was the ASB Economic Weekly throwing shade on Reserve Bank governor Adrian Orr when reporting on his speech in…
OPINION: A reader recently had a shot at the various armchair critics that she judged to be more than a…