The dairy industry is closely monitoring both supply and demand trends in China. Although there’s an evident growth in supply, it’s beginning to slow down. Meanwhile, demand has been somewhat lacklustre. Factors that could rebalance the Chinese dairy market are emerging. Still, the extent and duration of China’s economic slowdown remain uncertain.
In New Zealand, the focus is on milk production as we approach the spring peak flows. Early data from the 2023/24 season indicates that production is trailing by 1.3%. Interestingly, the North Island faces challenges due to adverse weather affecting grass growth, whereas the South Island is progressing well.
Beef Market Trends
In August 2023, farmgate beef prices recovered after a dip in July. North Island bull prices aligned with the five-year average, witnessing a 2.6% increase between 4th and 25th August, reaching NZ$5.80/kg. Store prices in the North Island also saw a slight rise, while those in the South Island remained stable.
Given the decline in New Zealand bull production and a potential rise in US imported lean trimming prices, schedule prices are anticipated to follow their usual seasonal trend in the coming months.
Sheepmeat Market Analysis
Lamb prices remained stable in August, albeit at historically low levels. The primary reason is the subdued demand from major markets and saturated supply chains.
Compared to last year, the average price for August was down by 25% in the North Island and 26% in the South Island. Despite these low prices, New Zealand farmers are receiving slightly more for lamb than their Australian counterparts.
Sheepmeat exports in July 2023 decreased by 25% year-on-year, aligning more with 2021 figures.
Farm Inputs: Fertiliser Price Movements
August marked the first month since the Russian invasion of Ukraine in February 2022, when all three major fertiliser price references indicated a positive trend.
Nitrogen prices fluctuated but ended 7% lower, while phosphate and potash increased by 17% and 1.5%, respectively. This surge, primarily driven by demand from South America, especially Brazil, is expected to be short-lived. Europe and North America are witnessing slow market activity.
Additionally, the nitrogen fertiliser market is influenced by natural gas prices, which are currently stable.
Interest and Exchange Rates
The New Zealand dollar depreciated by nearly 3% in August, influenced by concerns regarding the Chinese economy and its potential effect on commodity exports. This depreciation might pose challenges for the Reserve Bank of New Zealand (RBNZ) as it could lead to increased import costs and potential inflation.
Rabobank predicts that the Official Cash Rate (OCR) will remain unchanged, considering the current consumption slowdown, potential changes in the labour market, and the upcoming elections.
