Thursday, April 25, 2024

Softer demand for most NZ export commodities

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Returns are barely covering costs in many cases, ANZ says.
Susan Kilsby believes there will be a weaker demand in China for dairy commodities, particularly whole milk powder.
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Global demand for most of New Zealand’s export commodities has softened recently as China’s economic recovery has not happened as quickly as expected, ANZ agricultural economist Susan Kilsby says.

“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,” Kilsby said in the June edition of the bi-monthly Agri-Focus newsletter, titled Winter Chill.

In the ASB Commodities Weekly, economist Nat Keall said the data out of China for May was largely disappointing, including an economic deceleration from the April figures.

“Our view is that any growth in demand for key NZ primary exports from China won’t be sufficient to offset weaker demand from elsewhere.”

In both NZ dollar and US dollar terms, the ASB commodity price indices are now at their lowest since late in 2021, down 13% and 17% respectively.

Higher interest rates have added about 60c/kg milksolids to dairy farmers’ debt servicing costs over the past 18 months and there may be a further 5c to 10c to come.

Those debt costs would have been 20c-25c higher if farmers had not paid down their debt over the past five years.

Total dairy farm debt has come down $5 billion from $41bn to $36bn, but that decline has now stopped, ASB said.

The actual average cost of debt servicing for dairy farmers is $1.35 to $1/40/kg of milksolids.

ANZ said that international prices for beef and lamb have deteriorated but that farmgate schedules are steady.

For beef, demand in the United States and China eased at the same time as supplies from Australia and NZ increased.

“Demand from China for NZ beef is steady but certainly not exceptional,” Kilsby said.

“Until Chinese consumers gain confidence in the economic outlook, we are unlikely to see a rise in demand for imported foods.”

A surge in demand for lamb products that followed China’s post-lockdown reopening was shortlived as importers found it hard to shift products.

“Consumption has not lifted as quickly as expected, because consumers remain financially constrained and don’t yet have the confidence to spend as much as they once did on relatively expensive products.”

Kilsby also sees weaker demand in China for dairy commodities, particularly whole milk powder.

“Global milk supplies are growing only mildly, but in the current environment any growth is putting downward pressure on prices.”

ANZ has a farmgate milk price forecast for the 2022-23 season of $8.20 and only slightly higher at $8.25 for the new season.

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