Agri sector to lead economic recovery
OPINION: Over the past month, people up and down the country have been asking me what I think is in store for the Agri sector.
Last week’s GDT auction price index recorded a 0.3% lift. Prices remain around 13% lower than the recent peak in March, but 27% up on year ago levels.
However, the benchmark whole milk powder (WMP) price slid 1.5% and is now down 18% over the last seven auctions on the back of strong milk production in New Zealand.
Other prices fared better. Butter prices jumped 4%, while skim milk powder (SMP) and anhydrous milk fat (AMF) prices both recorded gains of more than 1%.
Westpac senior agri economist Nathan Penny says the result was in line with expectations.
For the second consecutive auction, global dairy prices have continued to reflect recent divergent trends, he notes.
With New Zealand the dominant global WMP exporter, WMP prices remain under pressure, reflecting the ongoing effects of record high production in the New Zealand autumn.
“New Zealand production jumped a whopping 10% over the autumn months compared to autumn 2020, with production also setting a record high for the season as a whole,” says Penny.
By contrast, SMP and cream (butter and AMF) prices have moved in the opposite direction, firming over the last two auctions.
“This firming may reflect dry weather in Europe and, in turn, softer recent European production. In the short term and with stable global dairy demand, we expect the fortunes of New Zealand and European production will drive WMP, and SMP and cream prices, respectively,” Penny adds.
“For WMP, the strength or otherwise ofNew Zealand spring production will begin to provide fresh impetus for prices in either direction, with official spring production data first becoming available in mid to late October.”
ASB economist Nat Keall agrees that the NZ spring will be the real test for prices as we enter the peak production months.
“Now that we are entering the peak months, the strength of NZ production will only grow in importance as a swing factor and could drive a bit of further volatility.”
NZ’s recent move to Covid alert level 4 adds a bit of uncertainty into this environment, particularly if prolonged.
