The report’s authors, ANZ chief economist Sharon Zollner and agricultural economist Susan Kilsby, are keeping an eye on the opportunities a gradual global recovery offers food producing countries like New Zealand.
However, they also caution it will be a slow start to the Government’s Fit for a Better World growth pathway.
A broad snapshot over the key primary sector industries does, however, point to generally positive state of play as of early August, with prices at or above their 10-year average for dairy, sheep and beef.
However, forestry has remained below its recent highs as the market continued to find some equilibrium.
The continuing loss of jobs through the economy has a peak that is difficult to pick, and the upside is the consideration being given to the primary sector as an employment option by people who may not have done so before now. This comes at a time when dairy staff demands are at a peak, often operating with sub-optimal staff numbers.
But looking out over the coming year, the dairy sector can expect a mixed market response, depending upon product type.
ANZ points to a roller coaster ride for cheese in the past few months, with early tumbling prices reversing after the US Government announced it would be buying dairy products to distribute to needy households. While a government-driven initiative, it has rippled positively through global dairy cheese markets.
This has also helped to balance the hit taken in the food service sector on products highly dependent on cheese, like pizzas and hamburgers.
Meantime, butter has had some patchy months, and consumers opting for home-made over store-bought bakery goods has failed to stop a softening of market prices.
Consumers have also given a priority to protein over fat, with firmer protein prices reflecting demand for essential type products like infant formula.
Kilsby said infant formula is benefitting from consumers stockpiling products, and while still a luxury product, buying on quality was regarded as a necessity by many Chinese consumers.
Overall, ANZ has the dairy market positioned better than expected to be, with relatively good price stability. But it cautions with 90% of the season ahead “massive risks” remain in how the season will pan out.
The farmgate prices for lambs being supported by procurement premiums is beginning to finally reflect the signalled easing in prices being reflected in markets.
The report cautions the slide is coming across all cuts, even lower priced ones sold in China where even the lower grade cuts are still expensive in relative terms.
The ANZ’s predictions for lamb prices to ease down echo concerns raised weeks ago by AgriHQ analyst Mel Croad.
“A number of processors are already signalling downside in printed schedules, if anything, we may have already seen the peak in lamb prices, despite supplies still remaining low,” Croad said.
ANZ continues to take a dim view of wool’s prospects, labelling the returns “dismal,” with little prospect of improvement in the coming 12 months as supply chains remain clogged and end-user demand remains weak.
Fine wool products haven’t been immune from covid’s impact either, with expectations lowered demand for products, like suits, is likely to continue as more of the office world works from home.
Like dairying, beef has a jumble of market signals playing through this season, with high-end cuts particularly affected by covid imposed economising and a slide in high-end food service sales.
However, lower grade cuts are proving easier to sell, with NZ bull beef demand being underpinned by continuing good sales of hamburgers in the US, which require lower fat kiwi beef to be blended into them.
The potential for schedules to lift in coming months will be depressed by the difficulty of selling high-value cuts, limiting processors’ ability to lift prices, as would normally occur.
Some upward movement in beef schedules is anticipated heading into spring when supply is typically lower.
Venison has also struggled as a high-value cut and prospects are likely to remain challenging with buyers shying away from forward commitments and logistics of chilled trade to Europe a challenge. However, domestic sales are helping soak some of the product up through supermarkets.
Kilsby said there is a split developing between high-value protein product and lower value essential commodity product globally.
“We are also seeing the health side of products helping sales, with people looking for food that may be healthy, or help the immune system, like kiwifruit and velvet doing well,” she said.
NZ’s continuing strong construction sector is helping prop up forestry prices, but the in-market log prices remain 12% below their five-year average.
A bumpy, long road to recovery is anticipated for logs, fed in part by the slide in demand for Chinese manufactured wood-based products, including pallets used for shipping manufactured products.
Fruit exports remain positive, with Zespri’s kiwifruit sales remaining robust, including a 40% lift in Japanese fruit returns year-on-year for three months to June.
A reduction in market uncertainty has narrowed payout ranges.
The apple sector’s returns are also ahead of last year, and export prices in June remained stronger than last year for many varieties, but newer varieties have continued to command a 16% premium over traditional varieties and overall exports are ahead in volume and value terms.