Saturday, December 9, 2023

More of the same please for 2020

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Steady growth in export earnings from the main primary industries has been forecast by the Ministry for Primary Industries for the June 2020 financial year.
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Its economics intelligence unit predicted in the Situation and Outlook for Primary Industries (SOPI) for the December 2019 quarter the sector will generate revenue of $47.9 billion, up 3.3% on the previous corresponding period.

The traditional mainstays of dairy, meat and wool will contribute $30b, split between dairy at $19.6b and meat and wool $10.4b.

“Robust global dairy prices and a weak outlook for the New Zealand dollar are expected to support solid revenue growth in the dairy industry of 8.4%,” the report said.

“High international meat prices are a result of African swine fever reducing China’s pork herd and increasing demand for imported protein.”

China took 31% of our primary exports, followed by Australia on 10% and the United States on 9%.

Horticultural industries are also predicted to have a strong year, led by an 8% increase for kiwifruit at $2.5b, wine at $1.8b and apples at $900 million.

However, the SOPI report and other commentaries on 2019 were written before the late-December fall in the Global Dairy Trade index of 5% and a series of sharp reductions in beef and lamb price indicators from their historically high levels.

The reports said our major primary export commodities ended 2019 at or near their highest levels for the past decade, led by lamb, beef, fruit and seafood prices.

Compared with already good prices in December 2018 last year ended with lamb up 15%, beef up 13%, dairy up 17.5% and fruit up 16%.

In NZ dollar terms commodity returns were even better as the NZD ended the year about 4% weaker against the USD.

The ASB commodities index in mid-December was 113.4, up 14.8% over the year.

ASB senior rural economist Nathan Penny expects NZ commodity prices to remain healthy throughout 2020. 

“Leaving aside seasonal patterns we anticipate that meat prices will remain very high for an extended period as the impact of African swine fever is likely to persist over 2020 and potentially into 2021. 

“Similarly, we also anticipate that fruit and seafood prices are likely to remain near record highs, if not drift a little higher. 

“Meanwhile, we expect dairy prices will rise over the first half of 2020 as global supply remains very tight.”

Penny said the sizeable global protein gap will underpin high beef prices through 2020.

Fruit exports are expected to earn $3.4 billion in 2019 after moving through $3b for the first time the year before.

In December Rabobank dairy analyst Emma Higgins increased her milk price forecast from $7.15 to $7.60/kg milksolids, citing weak milk production growth in all the seven major producing regions of the world.

A combination of environmental constraints on supply and high price resistance on consumption was dampening confidence

The MPI economists lifted their farmgate milk price forecast for this season to $7.25/kg milksolids, compared with $6.28 average across all companies in 2018-19.

In the meat and wool industries China’s share of red meat trade has doubled in two years, from 20% in 2017 to 40% in 2019.

Lately beef and veal have led the way with revenue predicted to grow by 7% to $3.6b this year.

Unfortunately, wool has fallen below $500m for the first time in decades, down 11% this year.

“This is due to reduced demand from China because it is exporting fewer clothes and textiles to the US due to trade tensions.”

The SOPI report said horticulture revenue will overtake that of forestry, up 5% to $6.4b versus a fall of 13% to $6b.

But the forestry outlook has improved since the September SOPI as log prices recovered more quickly than expected from their sharp fall in June and July.

Nonetheless, lower log prices accounted for all the $800m reduction in forestry export revenue from 2019 to 2020.

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