Thursday, August 18, 2022

2022 outlook points to a profitable year

RABOBANK believes New Zealand agricultural producers are positioned for another profitable year in 2022 despite ongoing global turmoil.

POSITIVE: Rabobank senior agricultural analyst Emma Higgins says as 2022 gets under way, the year “will hold bright sparks, despite headwinds gathering strength”.

Rabobank believes New Zealand agricultural producers are positioned for another profitable year in 2022 despite ongoing global turmoil.

This would represent the sixth consecutive year of general profitability for the country’s agricultural sector.

The bank’s 2022 outlook for agribusiness said that while it was likely there will be another profitable run for the outlook for agricultural commodities, it is “too early to break out the champagne just yet”, as elements of 2022 will be “unpredictable”.

Rabobank senior agricultural analyst and report co-author Emma Higgins said as 2022 gets under way, the year “will hold bright sparks, despite headwinds gathering strength”.

Last year saw record farm gate pricing locally for most NZ-produced agricultural commodities (with the exception of wool) – fuelled, in large part, by global factors, including adverse weather conditions in a number of regions, concern about food shortages and covid-19-induced supply chain chaos. 

Returns had also been underpinned by a favourable Kiwi dollar. The NZ agricultural sector had also performed well in navigating erratic supply chains and with trade flows holding up well despite the global pandemic, while trade relations with China had remained strong.

The report said NZ remains well-positioned on global agricultural markets for the year ahead, with the production prospects for competitors remaining crimped, as South America, the west coast of the US and parts of Europe continue to deal with inclement weather conditions, reducing their ability to ramp up production in the face of high prices.

Constrained global production of key commodities will support firm demand and pricing for NZ products.

Higgins said other factors set to be positives for the country’s ag sector in the year ahead include some easing in urea fertiliser prices and a continuing favourable exchange rate for exporters.

“While cost of inputs in New Zealand are likely to remain elevated over the year, we see some possibility that local urea prices will follow global prices lower over the next six months, although lower local prices could take three to four months to flow through,” Higgins said.

“And when it comes to the New Zealand dollar, local exporters are still looking at a favourable exchange rate. The Kiwi US cross is anticipated to trade at current levels over the next three months, before rising slightly to 73 cents by the year’s end.”

For dairy, global supply shortages will underpin firm commodity prices, but inflationary cost pressure will take away some of the record price shine.

In the beef market, Rabobank expects farm gate beef pricing to remain elevated above the five-year average in 2022, supported by constrained global beef supply and strong demand from China and the US.

For sheepmeat, steady demand from China in particular will likely support elevated farm gate pricing over the coming year, despite an expected lift in global availability of sheepmeat.

The bans also expects the venison market to continue to recover in 2022, with the reopening of foodservice in Europe and the US. Rabobank anticipates farm gate pricing to remain subdued in 2021-22, but strengthen into 2022-23.

In the horticulture sector, orchard gate returns for kiwifruit are expected to remain elevated in 2022, off the back of strong consumer demand. Significant changes to licence areas and the tender process will be made in 2022.

There will also be elevated risks for the agricultural sector with covid and the Chinese economy in particular continuing to loom large, while spiralling inflation and ongoing supply chain issues will provide their own challenges.

The rapid spread of Omicron worldwide illustrates the pandemic is not quite done with us, she said.

“New Zealand’s year of reckoning with covid-19 is upon us. How our key trading partners deal with the virus this year will be central to our export performance, compounding the already-significant challenges ahead this year for our agricultural exporters,” she said.

While many commodity sectors are enjoying record pricing, this may not translate into record profitability in 2022 due to inflationary pressures driving up input costs and ongoing labour shortages.

More uncertainty is also expected in 2022 as regulatory frameworks continue to develop in the area of environmental sustainability, the outlook said. Key milestones will include a decision on an emissions pricing mechanism for agriculture and the release of the Government Emissions Budget.

Higgins said now was the time to hold a broader discussion on land use, farming systems and the role of technology in NZ agriculture. 

“We must establish a pan-sectoral strategy linking our obligations for low-methane farming systems, with environmental, social and economic ideals, across future generations,” she said.

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