Monday, April 22, 2024

Record dairy, meat prices will go higher yet

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Dairy, beef and lamb commodities are setting new record prices and strongly contributing to the highest New Zealand commodity price indices in the past five years, ASB economists say.
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ASB chief economist Nick Tuffley titled the latest Farmshed Economics newsletter Who Dairies, Wins.

Dairy, beef and lamb commodities are setting new record prices and strongly contributing to the highest New Zealand commodity price indices in the past five years, ASB economists say.

“Our research suggests that meat and dairy are proving relatively resilient to freight disruption, while price gains should be sufficient to offset the impact of higher costs,” ASB said.

“For some other commodities, like seafood, forestry, wine and some horticultural products, shipping challenges are proving to be more of an issue and prices haven’t risen all that much, or have even fallen.”

The ASB Commodities Index reached an all-time NZ dollar high at the beginning of October and has continued to move higher from there.

The ASB series started in 2017 when all indices were 100.

At the end of October the index was 117.7, up nearly 1% during the week and 13% over the year.

The US dollar index was 119.3, up 1% in a week and 22.9% over the year.

The highest annual gains were sheep and beef in USD up 38% and dairy up 26.5%.

However, forestry rose only 9% and fruit down 7%.

For their November edition of Farmshed Economics newsletter, the ASB economics and research team headed by Nick Tuffley chose the headline Who Dairies, Wins.

They said a record dairy season was in prospect and their own farm gate milk price forecast was now $8.75/kg milksolids.

Dairy markets decelerated over winter but had now reversed that pathway and a supply response was now unlikely, with therefore little downward pressure on prices.

Dairy export volumes are proving the most resilient of our commodities in the logistics disruption.

“And given how strong price gains have been, they should more than offset the impact even if those shipping capacity constraints start to bite,” agricultural economist Nat Keall wrote.

Beef prices were called a silver medallist to lamb’s gold, with an index that hit record territory in October, some 22% higher than a year ago.

“Competition for cattle among processors remains fierce and we expect prices to gain further in the near-term,” he said.

“Underlying developments in the export market have been mixed but remain supportive.”

The high beef returns should flow into healthy profit and loss accounts for sheep and beef farmers, the ASB analysts predict, although rising costs mean margins are tight.

Lamb prices have hit a new record of 150 index points, versus 112 a year ago.

That 34% increase has taken the benchmark schedule price to $9.50/kg CW.

Shipping disruptions are hurting lamb exports and rising costs on-farm are eating into margins.

The disruptions have caused 11% reduction in wine exports year-to-date and a 13% reduction in apple and seafood exports, relative to pre-covid volumes.

“In these sectors, prices are not likely to gain enough to offset the impact,” the analysts said.

The value of the NZD is in a holding pattern around US71-72c with the strong commodity prices yet to have a real impact.

“The last time commodity prices were this strong, 2013-14, the exchange rate rose above US80c and the NZD continues to trade in a lower range to what the fundamentals would imply,” they said.

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