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Agri Focus
ANZ Agri Focus is a bi-monthly overview of developments in the rural sector, combined with research on topical issues.
Written by ANZ’s Rural Economist, ANZ Agri Focus typically includes feature articles on current topics, a review of the past month and the rural property market. ANZ Agri Focus also includes information on key commodities and financial market variables along with an economic backdrop and information around borrowing strategies.
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2021 editions
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2020 editions
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2019 editions
2021 editions
June 2021:
When it rains it pours (PDF 1.42MB)
Feed supplies across New Zealand are becoming increasingly tight as we head into the colder winter months. The extensive flooding in Canterbury has caused massive damage to farms and wiped out a lot of winter feed. Store markets for lambs and cattle remain subdued due to the limited feed. Meanwhile it will be a record year for milk production as conditions for pasture. Log prices are at exceptionally high levels as global demand for timber skyrockets at a time when supply has tightened. Freight disruptions are unlikely to abate anytime soon, continuing to cause havoc for our exporters and importers. Freight prices aren’t the only prices on the rise, with inflationary pressures now showing up nearly everywhere in the economy.
April 2021:
Slow boat to China (PDF 2.26MB)
Commodities are leading the global economic recovery. International demand for grains, dairy and forestry products is extremely strong – driven primarily by increased demand from China. Demand for products such as fruit is also robust, but finding sufficient labour to pick and pack the fruit is a major challenge. Container shortages and disrupted shipping schedules are also making it extremely challenging to deliver goods to market on time and in tip-top condition. It is particularly difficult for chilled products with a limited shelf life. Mother Nature has also been kinder to farmers this season than last. The east coast of NZ is still drier than normal, but this season’s drought is not as widespread as last season, which has provided more options to offload stock where necessary.
February 2021:
Reaping the rewards (PDF 1.97MB)
The year has started in a positive manner for most of our primary industries. The agreed upgrade of free trade agreement with China will help facilitate trade with our largest trading in the years ahead. Achieving this upgrade is particularly symbolic given China's relationships with many other trading partners have deteriorated. The dairy sector has started the year very strongly, which has resulted in milk price forecasts for the current season being revised up. The fortunes of the meat sector are mixed - returns certainly aren't as healthy as we have seen in recent years, but some sectors are improving. Demand for our produce generally remains strong in most markets. The biggest challenge is actually getting it there. Logistics are difficult at present as containers are difficult to source and ships are being delayed.
2020 editions
December 2020:
Freight challenges abound (PDF 1.85MB)
Global uncertainty remains heightened, making it difficult to forecast returns for the season ahead. Generally commodity prices are holding up better than expected in the current environment. Meat prices are expected to come under more pressure as larger volumes of stock are processed.
Disruption to normal supply patterns has now resulted in congestion in shipping as buyers panic about restocking shelves with consumer items. This is resulting in congestion at ports and reduced access to shipping containers due to longer turnaround times. Congestion at our local ports is not helping either.
Despite the uncertain times, demand for NZ export goods remains steady, but returns this season will not be exceptional for any industry.
October 2020:
Global economic trade is slowing but this has not impacted the volume of product being exported from New Zealand but attaining top prices is extremely challenging in the current economic climate. Rising shipping costs and the strong NZ dollar are also eroding returns at the farmgate level. But labour shortages are top of mind for primary producers. Border closures show just how reliant we have become on overseas labour to pick our fruit, shear our sheep, drive our tractors and milk our cows. This is particularly the case for the horticultural sector, which is not able to offer year-round employment and therefore has limited appeal to locals. Unsurprisingly, Kiwis have opted for more permanent and less physically demanding roles. As unemployment levels rise we will see some drift back to seasonal work, but this option will suit only a small number of people. Therefore, there will still be labour gaps to fill. Being able to work abroad for part of the year has become an economic lifeline for many Pacific Islanders. The economies of these islands have been hit hard by the lack of tourism. Getting the recognised seasonal employer (RSE) scheme back into action would be of mutual benefit from an economic and wellbeing perspective.
August 2020:
All that glitters is gold (PDF 1.19MB)
Global uncertainty is unprecedented. While much of the world continues to deal with the day-to-day health issues associated with battling COVID-19, those countries who have managed to contain it are now focusing on their economic recovery, while keeping a nervous eye out for second waves of infection. The kiwifruit industry continues to be a standout example of how to add value by restricting volume. At the moment we are not only seeing investors clamouring to invest in the security of gold; we are also seeing kiwifruit producers paying record high prices for the rights to grow SunGold kiwifruit.
June 2020:
Difficult road ahead (PDF 1.60MB)
We are currently in the eye of the COVID-19 storm. In New Zealand life is returning to normal as lockdown conditions ease much faster than was originally deemed feasible. While the end of the disruption is very welcome, the real economic damage this pandemic is causing is only beginning to become evident. New Zealand’s exports are highly dependent on economic conditions in the markets in which we sell our produce hence there will be plenty of challenges ahead.
April 2020:
Storm clouds above (PDF 1.30MB)
Economic growth rates in New Zealand and globally have been slashed as we all hunker down to avoid the spread of COVID-19. Under lockdown rural New Zealand feels like a relatively safe place to be, and on our farms daily life is continuing in a much more normal manner than in the cities.
New Zealand is fortunate to produce enough food to feed ourselves eight times over so the supermarket shelves won't ever be bare, but we can't avoid the economic fallout of this horrid virus.
February 2020
Sun sets on golden run (PDF 1.25MB)
The sun is setting on the golden run for our food exports. While the global supply of dairy and meat products is expected to remain constrained, new global risks are now impacting demand.
The New Zealand dollar firmed over November and December but a large portion has since retraced, and volatility can be expected. A slightly higher NZD has resulted in a small downward revision to our milk price forecasts. Our current season forecast is now aligned with Fonterra’s at $7.15/kg MS (previously $7.45), while our 2020-21 forecast has been revised down to $7.10/kg MS (previously $7.60), on the back of lower dairy prices, with prices at the latest GDT auction falling 4.7%.
2019 editions
December 2019
Meat prices have sky-rocketed due to the global shortage of meat primarily caused by the reduction in pork production in China. While prices have eased marginally both in-market and locally the price of meat is expected to remain elevated in the coming months.
Dairy prices have also lifted. Strength in milk powders combined with a subdued NZ dollar has allowed our milk price forecasts for the current season to lift to $7.45/kg MS.
October 2019
International market demand for our main export products is generally strong. Combined with the low NZ dollar, this is delivering record farmgate returns for sheep and beef farmers, and decent returns in most other sectors.
However, business confidence in the primary sectors is dismal as food producers grapple with finding optimal solutions to meeting future expectations of 'how' food should be produced.
There is still considerable uncertainty as to where the environmental goal posts lie and how to reach these goals. This uncertainty is hindering confidence and investment.
August 2019
Returns at the farm and orchard gate are strong for our food-producing sectors. Global risks remain heightened but short supply in the dairy and meat producing sectors is supportive of prices at present. Rising costs of production are, however, biting into returns and limiting confidence, particularly in the dairy sector.
Ongoing improvement in environmental standards is at the forefront of the minds of our dairy producers. Relatively slow development of rules and policies by some regional councils is impacting farmers’ confidence to invest in on-farm solutions. Thus far sheep and beef producers have not faced the regional council or media scrutiny that their dairy compatriots have, but this is beginning to change.
June 2019
Agri Focus: Fine China or Fragile China? (PDF 1.2MB)
Milk prices for the season ahead are on track to be stronger than the current season. Fonterra has elected to take a more cautionary approach than the market expected, announcing a milk price in the range of $6.25-$7.25 per kg milksolids for the 2019/20 season. While demand could certainly be impacted by slowing global growth, global milk supply is also expected to be contained, which should support prices in the year ahead.
Meat returns remain strong, which is injecting confidence into the sheep, beef and deer farming sectors. Winter contracts for lambs are strong and schedule prices next season should continue to be supported by underlying market demand and the lower New Zealand dollar.
Agri Insight: The role of forestry in meeting New Zealand’s climate change obligations (PDF 1.3MB)
Land use change in New Zealand will be required to achieve improved sustainability. Sustainability requires a balance between economic, environmental and social needs. Planting additional trees can help achieve environmental goals but this will only be truly sustainable if it is done in a way that also meets the social and economic needs of our rural communities. While the optimal treatment of agricultural emissions remains so challenging there are clear incentives to increase the quantity of trees being planted to reduce the required fall in emissions. Policy changes, grants towards planting costs, and the opportunity to gain revenue from carbon credits will all incentivise more trees to be planted. Support from farmers is required to switch some land currently used for grazing to forestry. Ideally this would occur through pockets of plantings on grazing properties, rather than complete conversion of farms to forestry, which could have negative economic and social impacts for rural communities.
April 2019
Primary producers are benefiting from high in-market prices for export goods, which are being fed back to producers through elevated returns at the farm or orchard gate level. Industry confidence varies between sectors with high debt levels in the dairy sector weighing on sentiment. Milk prices are trending up but the dairy industry remains cautious. Dairy farmers are focusing on ensuring their farming operations meet regulatory and consumer expectations, as well as focusing on debt reduction. Meanwhile, optimism is starting to creep back into the sheep and beef sector. Lamb returns have held at exceptionally high levels throughout the season, while those for beef have been steady. Beef returns have benefited from the emergence of China as a strong alternative market, reducing the industry’s reliance on the United States.
February 2019
Up at the crack of dawn (PDF 932kB)
The primary sectors are generally doing well at the moment with strong production and prices across the majority of sectors. In-market prices are generally above long-run averages and the relatively low NZ dollar is resulting in greater returns for farmers and growers. Excellent growing conditions have bolstered milk production this season. Meat processing has been delayed as farmers hold onto livestock for longer, meaning heavier stock for processing when they eventually come forward. In-market prices are average or above for virtually all sectors – with wool the only major exception. China continues to become a more and more important market for New Zealand’s primary produce. The flipside of opportunity is vulnerability: we are increasingly exposed to the risks associated with a slowing of this economy, but for now demand from this market is unabated.
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