Thursday, April 25, 2024

ANZ sees lower farmgate prices all round

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On-farm cashflows will take a lot of managing in this downturn.
Unlike cattle, sheep don’t eat daffodils, another point in high-country sheep farms’ favour when it comes to growing the flowers for their medicinal properties.
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Cashflows on farms will be severely impacted this season by soft farmgate prices, with reduced demand from China the main cause, ANZ economists say.

Chief economist Sharon Zollner and agriculture economist Susan Kilsby said that keeping on top of cashflows will be imperative in managing through the downturn.

They have published the August edition of the ANZ Agri Focus newsletter, called Keeping Afloat.

“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.”

They say global economic conditions are challenging and export returns have taken a turn for the worse.

Demand has eased in many markets but China is having the biggest impact on farm incomes.

“Farmgate returns for most industries are dropping rapidly, while interest rates are rising and other farm costs are stubbornly high.”

China is facing structural changes to its economy, with an ageing population, falling birth rates and stalling population growth.

The prolonged slowdown in the property market, high youth unemployment and a trend of saving money rather than spending it are compounding the economic woes.

“China accounts for such a large share of New Zealand’s exports that many sectors struggle to replace any drop in its demand in a timely fashion, and this has a widespread impact on export and farmgate prices.”

Economic impacts in many markets are affecting higher-priced NZ proteins such as lamb and venison.

Lower-priced products like dairy and manufacturing beef will fare somewhat better, they say.

In the dairy industry, markets have stockpiles and buyers are using a hand-to-mouth buying strategy.

“When the market gets a whiff that prices may rise, that strategy is likely to change, and buyers will start bidding to secure product ahead of it, but that may not be until 2024.”

The NZ spring peak in milk supply means more products to sell in this weak market.

Fonterra has programmed higher Global Dairy Trade volumes and that will have been factored into the two recent reductions in the farmgate milk price forecasts.

“The low prices will mean global milk production eases, which will help re-balance the market, although not quickly.”

Sheepmeat exporters are highly exposed to the China markets for mutton and lesser-value lamb cuts, Zollner and Kilsby said.

“Processors are now finding it very difficult to sell lamb and mutton into China, where consumers lack the confidence to spend on nice-to-haves, particularly relatively expensive sources of protein such as lamb.”

Other lamb markets are relatively subdued, but the United States market is doing a little better.

Lamb prices are down 25% on this time last season and mutton is down 46%.

ANZ expects farmgate prices for lambs to fall during the rest of this year and whether they then improve is dependent on whether China demand improves.

“Stocks of lamb in-market have built up, and export figures indicate local stocks may also be building. 

“These will need to clear before there can be any significant improvement in pricing.”

Larger volumes of Australian and NZ beef have been sold into the US market, resulting in non-typical falling prices over the winter.

Export prices have come off by 15% over the past three months but the effect has been cushioned by a weaker NZ dollar.

Global grain markets are weighed down by uncertainty surrounding Ukrainian exports.

“There are concerns regarding how much grain the dairy industry is likely to purchase this season, given the sharp downturn in the forecast milk price.”

However, the prices for palm kernel expeller are up around $400/tonne and feed grains can compete at that level, being higher-energy, more palatable stock feeds.

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