Friday, April 19, 2024

Dairy bounces back while meat lags in latest ASB report

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Changing monetary expectations create bullish growth outlook for dairy.
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Dairy prices have rebounded in ASB’s latest Rural Quarterly with prices up 22% since their lowest point.

However, prices are still around 30% below the peaks they enjoyed the previous year.

 ASB economist Nathaniel Keall said the more bullish growth outlook for dairy has a lot to do with changing expectations around what monetary policy will do.

“Markets have become more bullish that rates won’t need to move as high, and the global economy might manage the fabled ‘soft landing.’ 

“Traditionally ‘safe’ assets like government bonds and the US dollar are out of favour, and ‘risk’ assets like equities and commodities are back in vogue.”

At the recent GDT auctions, the main feature was the absence of Chinese purchases. Over the past three months, the world’s largest dairy importer has purchased less than 40% of the whole milk powder (WMP) on offer at each auction, versus a historical average of 55-60%, he said.

“We’ve twice revised our 2023/24 milk price forecast since our last report. The recent uptick has also pushed our forecast for the 2025 season higher to a fairly robust $8.30/kg MS.”

In other commodities, red meat looks to have been harder hit than others with the average producer earning a little over 9% less than they were at this point in the previous season – and as much as 21% below what they could hope to be paid at this stage in the 2022 season. 

“Lower demand has crashed into stronger meat supply in many parts of the world. Oversupply has been an acute issue in the Australasian lamb market, explaining the sustained weakness in lamb prices.

“Australian lamb production rose a whopping 13% to record highs in calendar year 2023, releasing a glut of supply onto global meat markets and placing downward pressure on wholesale prices.”

The downturn in forestry prices came earlier – and hit harder – than the softening in other commodities, particularly given the concentration of the sector in China.

“With Chinese economic activity projected to slow in 2024 (albeit not as much as previously expected), and the Chinese property market not looking particularly flash, we are expecting modest support from the export market.

He was anticipating a slightly more supportive environment domestically. 

“With OCR cuts likely in the second half of the year, we expect house prices to gain ground over the course of the year somewhere in the region of 7-8%. 

“That’s a much slower upswing than during the last house price cycle, but should bolster construction activity and ultimately domestic demand for New Zealand forestry products to some degree.”

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