October saw a general firming of commodity prices in New Zealand’s agricultural sector. Notably, Oceania FOB powder prices rallied by over 10% due to less favourable milk production signals from New Zealand. While butter prices also strengthened, cheese prices declined in October, influenced by a weak US wholesale market.
New Zealand’s milk production outlook is under a cloud, with September figures showing a 0.4% decrease in milk volume compared to the previous year, although there was an increase on a milk solids basis.
This trend means the season-to-date production is trailing the previous season by 1%, primarily due to challenging conditions in the North Island. This situation is mirrored in the US, where milk production is declining due to a smaller herd, and in Europe, where milk supply growth remains sluggish.
In the beef sector, the North Island bull price saw a modest but steady increase of 2% over four weeks to NZ$6.15/kg as of 27 October. This rise is stronger than the average for this time of year and is now 5% higher than the five-year average.
The rise in New Zealand prices may reflect lower volumes of cows and bulls in the system and processors’ efforts to attract numbers, anticipating strong US prices. Beef export volumes for September were down by 5% year-over-year, with a notable 30% decline in volumes to China and a 46% drop in value.
However, shipments to the US increased by 35% to 8,884 tonnes.
Sheepmeat prices, however, did not fare as well in October. Farmgate prices for lamb, which had shown a slight increase over September, dropped back down below NZ$ 7/kg by 27 October. These prices are now 25% lower than last year and almost 20% below the five-year average. Lamb slaughter volumes for the 2022/23 season remained steady compared to the previous year, but export receipts were down by 17%, driven by weaker shipment values to China and the US.
Looking at farm inputs, the price structure in Q4 2023 is expected to heavily impact farmers’ budgets next season. Fertiliser prices are forecasted to be stable with a slight downward potential, assuming no disruptions from the Israel-Hamas conflict. International urea prices are expected to be down 11%, with DAP prices down 26% and potash down 41%.
However, currency and energy costs could adversely affect farmers’ input budgets, with diesel prices posing an additional challenge.
In terms of interest and exchange rates, New Zealand’s third-quarter inflation was lower than expected at 5%, compared to a forecast of 5.9%. This has led to a decline in the New Zealand dollar, which fell as low as 0.5574 after opening the month at 0.6004.
Despite individual consumer pressures, the high rates of net inward migration and the weakening currency are providing some support to the economy as New Zealand’s trade performance gradually recovers.
