The cost of shipping logs to China has increased more than fourfold since the pandemic and now accounts for half the value of a log, which is dampening prospects for the sector.
Inflated labour and fertiliser costs are eroding historically high primary sector product returns, ANZ says.
While some cost pressure may ease once the impact of the pandemic recedes, the bank’s latest Agri Focus research paper warns other costs will remain.
“Compliance costs are skyrocketing as the complexity of the consent process means professional help is often required to lodge consents,” ANZ said in its report.
Interest rates are also rising on the back of tighter monetary policy and the bank predicts the value to the NZ dollar will rise to US72c then level off.
It predicts the Official Cash Rate (OCR) will reach 2% by next August on the back of tighter monetary policy.
Compared to the 10-year average, the bank says current prices for dairy, sheepmeat and beef are high, while forestry is tending lower.
ANZ predicts a farm gate milk price of $8.80/kg MS this season and $8/kg MS next season, that optimism stemming from tight global supply.
It notes that these milk returns are being eroded by “a massive increase in on-farm costs”.
The dairy industry is consolidating, with fewer farms and less intensive management, and it noted peak milk this year was 3.1% less than last year and 4.2% below 2018.
Meat prices are benefiting from strong global demand and, in the case of beef, tight supply, while forestry is being hit by lower prices in China and high shipping costs.
Lamb prices are currently about $2/kg higher than at the same time last year and, while prices will ease, the report says overseas prices are at record levels due in part to improving restaurant demand.
For example, the price of French racks is close to pre-pandemic levels.
“It also shows that the current farm gate prices are supported by international returns, although it is clear there is a little procurement pressure at work at present too,” it said.
“What is less clear is the impact that the higher shipping costs and freight disruptions will potentially have on farm gate returns.”
International prices for beef remain strong, driven by limited supply from South America and Australia.
US consumers are paying 20% more for beef than they were a year ago.
The bank predicts farm gate returns for bull beef in the year to September 30 to be a record $6/kg.
Venison prices have been lower than in recent years, but the report says prices have stabilised at around $7 since the end of the chilled season.
This fall is not as marked as usual, giving some confidence prices may settle at close to current levels.
Velvet prices have lifted 10-15% since the end of last season as consumers seek natural products with perceived health benefits.
There are reports that local supplies of cereal grains are half what is normally available at this time of the year, indicating that prices could lift further.
“Stocks have been quickly run down since winter and now there is very little grain on-farm that is not already accounted for,” it said.
“Last season there was about 7% less grain harvested than the previous season.”
The cost of shipping logs to China has increased more than fourfold since the pandemic and now accounts for half the value of a log, which is dampening prospects for the sector.
The availability of labour for the horticulture sector is expected to be worse than last year and looms as its biggest threat.
Shipping costs in general are three to four times greater than they were at the start of the pandemic and while there are signs they have peaked, the bank warns it could take 18 months to stabilise and are likely to settle at rates higher than before the pandemic.
