Dairy Market Developments
In October, there were encouraging signs for Oceania’s dairy exporters, with a general firming of commodity prices. Notably, Oceania FOB powder prices saw a rally of more than 10% due to less favourable milk production signals from New Zealand. While butter prices also strengthened, cheese prices declined, influenced by a weak US wholesale market.
New Zealand’s milk production outlook remains uncertain, with production in September 0.4% lower than the same month last year on a volume basis, though higher on a milk solids basis. This has resulted in the season-to-date production trailing the previous season by 1%, primarily due to challenging conditions in the North Island.
Beef Market Insights
North Island bull prices in New Zealand started 2023 close to the five-year average and, after peaking in April and May, are expected to end the year near this average. As of 24 November, the North Island bull price was NZ$5.85/kg, aligning with the five-year average.
In the US, imported lean trimmings prices have been gradually decreasing since late September and are currently trading close to the five-year average. With US import prices expected to decline further and the Chinese market potentially saturated post-Lunar New Year, a normal seasonal decline in NZ cattle prices is anticipated towards the year’s end.
Lamb Market Dynamics
Lamb prices have been under pressure due to high volumes of Australian products and weak demand in key markets. As of 24 November, the South Island lamb price in New Zealand fell to its lowest level for this time of year since 2016, at NZ$6.45/kg.
Australian lamb prices, despite a recent uplift, remain at some of their lowest levels since 2015. With no strong recovery expected soon and continued high volumes from Australia, New Zealand lamb prices are likely to remain subdued as they enter the higher supply periods of the new year.
Farm Inputs and Fertiliser Prices
The global fertiliser market is showing mixed trends. While DAP prices in Morocco have been stable since early October, urea prices in the Middle East have dropped by 14.3% in 30 days. This decline is attributed to reduced fertiliser subsidies by the Indian government and modest tender activity.
Additionally, scarce rainfall in central Brazil is concerning for the upcoming second summer crop. OPEC’s decision to extend crude oil cuts until 2024 is expected to impact freight costs, already affected by challenges such as low water levels in the Panama Canal and pirate attacks in the Red Sea.
Furthermore, China’s potential restrictions on fertiliser exports to maintain local market affordability could influence global supply.
Interest and Exchange Rates
Revised forecasts on the Official Cash Rate (OCR) and expectations of rate cuts in the US have led to a surge in the New Zealand dollar. In November, the currency strengthened significantly against the US dollar, which could help lower the cost of imported goods.
The Reserve Bank of New Zealand’s (RBNZ) aggressive monetary policy stance might not materialise as expected, and inflation rates may decrease faster than anticipated. Interest rate swaps fell in November, following a global shift in bond yields. If inflation and bond yields continue to decline, swap rates could further decrease through December.
This comprehensive overview provides insights into the current state of dairy, beef, lamb, and farm inputs markets in Oceania, along with the potential implications of interest and exchange rate fluctuations.
