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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2023 editions

October 2023: Regaining ground

Global economic conditions are challenging, but export returns are currently holding or improving. Tighter supply is helping balance the relatively lacklustre demand for products such as logs and dairy. Meat supply from competitors is high, but only small volumes of beef and lamb are being processed locally. There is still reasonable underlying demand for New Zealand’s products; it is just a challenge to get high prices, as consumers across the globe are cutting spending in response to tighter economic conditions. Interest rates are expected to remain high for some time, and many farm operating costs are up. Most farms are cutting costs where they can, to try to break even this season. The longer-term outlook is more positive, as global competitors are facing similar challenges and curbing production.  Discussion on pricing New Zealand Emissions Units (NZU) is expected to resume after the 14 October election. Once details are agreed the outlook will become clearer for many farm businesses.

August 2023: Keeping afloat

Global economic conditions are challenging, and export returns have taken a turn for the worse. Demand has eased in many markets, but it is the muted level of demand from China that is having the biggest impact on farm incomes in New Zealand. Farmgate returns for most industries are dropping rapidly, while interest rates are rising and other farm costs are stubbornly high. Conditions on farms vary considerably. Many regions are wetter than normal, but the winter has generally also been milder. September weather tends to vary hugely year-to-year, and what we are dealt this year will have a major impact on lamb survival rates and spring pasture production. Farm cashflows will be severely impacted this season by soft farmgate prices. Keeping on top of cashflows will be imperative to managing through this downturn. This is not the first downturn our primary sectors have encountered, and it is unlikely to be the last. Working out what options are available and having a variety of plans to manage through this period will be vital for success.

June 2023: Winter chill

Global demand for most of our export commodities has softened recently. China’s economy has not recovered as quickly as expected, putting downward pressure on prices. Farmgate returns for most industries are at or above a five-year average, but cost increases mean, in many cases, returns are barely covering costs. The rapid rise in interest rates is a major cost that is taking a toll on heavily indebted businesses. Autumn’s warm wet conditions mean most farms are entering winter with plenty of feed. Farmgate prices for milk and meat have softened, although procurement pressures have kept movements in meat schedule prices in check. For the horticultural sector autumn harvests are now almost in. The sector’s overriding theme is smaller harvests and slightly stronger prices, but overall returns are well down for many growers.

April 2023: A further lift required

The Reserve Bank of New Zealand (RBNZ) has made it clear that their battle with inflation is far from over. Inflation is not yet under control despite strong efforts from the central bank to curb demand through deploying higher interest rates. Given it takes considerable time for OCR changes to work their way through the economy, the debate over “how much is too much” is only likely to get louder over the months ahead, as the impacts of past tightening become more evident beyond the housing market. Rural sector businesses are facing very tight margins as they juggle lower incomes, higher operating costs and increased interest rates. Autumn weather has generally been favourable for pastoral farms, with the exception of those regions still trying to get back on their feet following the massive February floods. The harvest of horticultural produce this autumn will be considerably lighter than usual for two of our major export crops, apples and kiwifruit. Reduced output is expected to be somewhat supportive of prices, but returns are not expected to be exceptional due to global economic challenges. Meat prices have benefited from China’s reopening but dairy prices are yet to bounce back as increased global milk supplies weigh on the market. Labour remains a challenge for the primary sector, and this is expected to result in a bottleneck in meat processing this autumn. A backlog of cattle is already building as processing weeks shorten due to the Easter and ANZAC holidays.

February 2023: Opportunities and challenges ahead

Both opportunities and challenges will be abundant in 2023. As we start the year, global economies are feeling the negative impacts of inflation, slower economic growth and tighter monetary policy. But forecasts of global growth are generally now being revised up rather than down, with more resilience than expected in European growth, in particular. And in terms of the impact of the pandemic, the worst of the health, labour and supply chain issues are now likely to be behind us. Prices for our main export commodities have eased, but the situation should improve later in the year when demand, primarily from China, is expected to lift. Fertiliser prices are now trending down; one of the few inputs where prices aren’t still rising. Operating margins have tightened considerably. The situation on farm varies considerably across the country. The recent heavy rains in northern regions have severely affected some properties. Meanwhile, most southern regions are rapidly drying out and would welcome some gentle rain.

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