Lower dollar firms outlook

We anticipate New Zealand milk collection for the current 2020/21 season (ending 31 May 2021) to land between the vicinity of 1% to 1.5% higher than the prior period.

Attention is focused on the Northern Hemisphere flush in the coming months. Rabobank forecasts a 1.1% increase in milk production across the Big 7 dairy producing regions in 2021.

This is a decrease compared to the 1.6% YOY increase in 2020 and represents a modest tightening of supply.

With farmers turning their minds to the new season's budgets, opening forecasts from processors for the new season (beginning 1 June 2021) are eagerly anticipated.

At this stage, market fundamentals support another profitable milk price but with the re-emergence of more volatile pricing signals, it's likely that there will be an element of conservatism in opening ranges.

Beef

Raboresearch expects farmgate prices to hold steady during April, with the reduced competition from Australia and a weaker exchange rate at the end of March helping to provide a firm pricing floor.

Minimal farmgate price movements - a feature of 2021 thus far - continued into March. As at the end of March, the AgriHQ North Island bull price was NZ$5.00/kg cwt, with the AgriHQ South Island bull price sitting fractionally lower at NZ$4.50/kg cwt.

The trading range for prices has remained largely benign since mid-December, in stark contrast to the sharp decline experienced during the same period last season, with prices in both Islands continuing to sit slightly below their five-year average.

Across the ditch, a combination of widespread rain and low livestock inventory has resulted in Australian producers holding on to stock longer and even causing saleyard numbers to drop to their lowest levels in over 10 years.

As the Australian herd rebuild continues, the resulting reduced competition in export markets will prove helpful for farmgate returns over the coming months.

RaboResearch expects a revival of foodservice sales in the second half of this year, as vaccination programmes continue to roll out, helping to boost overall farmgate returns for producers.

Sheepmeat

We expect the continued demand from key markets, in combination with seasonal tightening of supply to see prices firm through April 2021.

Farmgate prices eased further over the last month, in line with farmers seasonally offloading stock. As of the end of March 2021, AgriHQ prices in the North Island averaged NZ$6.55/kg cwt (-6% YOY) while South Island lamb averaged NZ$ 6.25/kg cwt (-8% YOY).

Demand for sheepmeat from China continues to remain robust. New Zealand shipments of lamb to China were significantly higher in February 2021 compared to the year prior, which has materially impacted by the outbreak of Covid-19. A recent weaker Kiwi cross will further support export returns, with the NZ$ below USc70 as at the end of March 2021.

RaboResearch sees some upside potential for farmgate returns over the coming months. We think prices have some upside to come as we move through into the seasonally-tighter supply period and some procurement pressure builds.

We anticipate steady demand from our key trading partner, China - particularly in light of lower supply volumes from Australia.

Fertiliser

Global fertiliser markets continue to be gripped by what can only be described as a perfect storm. We expect that global prices will begin to subside in April, initially for urea, before phosphates follow later in Q2.

For local farmers acquiring phosphate relief will be too late for this season. Global phosphate prices have increased most significantly - most global benchmarks have now nearly doubled (in US$ terms) compared to 12 months ago.

DAP ex US Gulf has now increased some 45% this year. In the face of global higher prices, and higher freight rates, local farmers can expect to pay higher prices for urea this season.

We do expect global prices will ease from April to June, but this may be too late for this importing period.

Foreign Exchange

The NZ$ weakened against the US$ during March. Having opened the month at USc72.7, it closed just below USc70 on March 30.

Much of the movement can be attributed to the strength of the US$, which rose against many currencies - with the US$ broad index up almost 3% for the month.

The USD was pushed higher on the approval of more stimulus spending, rising vaccination rates and encouraging early economic data for March.

Congress passed the USD 1.9 trillion stimulus bill on March 11 - freeing up the government to inject funds worth around 8.5% of the size of the economy into the economy. This in turn led the Federal Open Market Committee to upgrade their 2021 forecasts for both economic growth (to 6.5%) and inflation (to 2.4%). Rabobank is less convinced than the market about the prospects for an inflation overshoot and early rate hike.

And with commodity prices expected to remain firm, we expect that NZ$ to avoid major downside from here. RaboResearch expects the NZ$ to tap in at USc74 by Q1 2022.