Tuesday, February 27, 2024

Year ahead will ‘keep farmers on their toes’

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Rabobank outlook identifies three ‘undercurrents’ affecting ag in 2024.
Rabobank senior agricultural analyst Emma Higgins says business success in 2023 will hinge on the sector’s ability to adopt a back-to-basics approach focused on reduction of business costs and selection of the right supporting team.
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Smooth sailing or choppy waters, 2024 is shaping to be the year for more collaboration as New Zealand agriculture rides currents of change likely to run deep for food and fibre producers.

Agribusiness banking specialist Rabobank’s annual flagship outlook report 2024, Smooth Sailing or Choppy Waters, cites three prevailing undercurrents in the sector in the year ahead: central bank actions, the recovery of the Chinese economy and geopolitical tensions and conflict. 

“NZ farmers are no strangers to facing challenges, and 2024 promises to keep them on their toes,” report co-author senior agricultural analyst Emma Higgins said. 

“With many variables to pay attention to, setting sail for success this year will require a strategic mindset, agility and collaboration, traits NZ farmers and growers have no shortage of.” 

Higgins said the chief undercurrent affecting agriculture will be central bank actions that will flow through to the cost of funds.

“The current restrictive monetary policy settings might start to ease up later this year, but don’t be getting hopeful for a throwback to post-Global Financial Crisis (GFC) rate levels.” 

Rabobank’s view is that the Reserve Bank of NZ, in step with the United States Federal Reserve, will likely hold off Official Cash Rate cuts until the second half of 2024, with any cuts likely to be only modest. 

The second undercurrent NZ agribusiness could face in 2024 will be the Chinese market, which is expected to create a challenging course for exporters.

“Our key export market is likely to continue to have a slow economy this year. 

“Property price pressures, weak consumer confidence, dwindling demographics, and lethargic global consumer demand for Chinese exports will all play a role here.” 

This doesn’t bode well for strong commodity prices for NZ food and fibre export products heavily reliant on China.

Escalating geopolitical tensions and conflict are the third major undercurrent that could throw up some chop for the NZ farming sector.

“The catch-all phrase ‘geopolitics’ will permeate across sectors and countries in 2024.

“The latest shipping disruptions in the Red Sea place upward risk of another global supply chain shock and for potential implications one does not have to look further than the 2021 snarled supply chains and energy crisis.” 

The report says input costs for NZ food producers, along with freight costs for getting products to global markets, should be watched. 

In the past week, tensions with China had emerged as a further potential geopolitical threat for Kiwi exporters. 

While these undercurrents are anticipated to have the largest influence on the sectors fortunes in 2024, the report also highlights some tailwinds and cross currents that could help with navigating the “blue horizon” this year. 

The much talked-about El Niño has delivered a mixed bag of weather so far with forecasters indicating that El Niño will be alive and kicking at least until autumn 2024, but global institutions now see an increased probability that El Niño will fade. 

Sustainability and emission reductions will remain a key theme for the sector.

“Supply chains are working on GHG solutions, all the while testing consumers’ willingness to pay. 

“On farm, most of the transitions are still to come as many farmers seek to either continue their knowledge journey or consider which changes to put in place.” 

One wild card for 2024 remains, with the year ahead set to bring intense democratic activity around the world as almost half the global population queues at the polls. 

Superpower election results from the likes of the United States, India, the European Union and Russia, will determine global stability for years to come. 

Pivotal trading countries like South Korea, Indonesia and the United Kingdom are also on the list of those with elections in 2024.

“Closer to home, NZ’s new coalition government is settling in with priorities being decided.” 

However, the general direction of travel for the broader regulatory environment is likely to remain the same, Higgins said. 

While dairy commodity prices are back to long-term averages, Rabobank predicts current fundamentals provide the perfect ingredients for price volatility to be a key theme for 2024. 

Resilient beef pricing in NZ is expected over the next 12 months with good demand forecast from the US. 

Sheepmeat remains a subdued waiting game with hope that the second half of the year will see a more positive upward correction in pricing.

The kiwifruit industry is expecting a year of record returns as progress has been made to improve fruit quality over the past few years. 

Farm inputs, after a few seasons of persisting rising prices, will see a reversal in the trend in the coming year and lower costs from fertilisers and agrochemicals are expected. 

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