Recent data from Rabobank has spotlighted the significant challenges facing the dairy sector, with China’s economic recalibration serving as a key factor. The industry is preparing for an extended period of subdued demand, particularly from China.
On a global scale, milk production is also showing early signs of deceleration.
For instance, New Zealand’s milk output for the initial two months of the 2023-24 season is expected to trail by 1.3% in terms of tonnage. Moreover, the Northern Hemisphere is experiencing a decline in both cow numbers and yields, indicating a flat or even declining growth outlook.
In stark contrast, the beef market is displaying resilience. After a slump in July, farmgate beef prices have rebounded, and production figures for August have largely mirrored those of the previous year, adhering to seasonal norms.
The lamb market, however, is navigating through turbulent waters. Despite some stabilisation in August, prices have been persistently low, impacted by weak demand from key markets.
As of late August, the average price had plummeted by 25-26% compared to the same period last year, and July’s sheepmeat exports also experienced a 25% year-on-year decline.
Trans-Tasman competition is intensifying, particularly in the lamb export arena. New Zealand’s higher pricing at NZ$6.95/kg is counterbalanced by Australia’s more substantial export volumes to China, which are priced more competitively between NZ$3.25-4.35/kg.
This dynamic is fuelling a heightened sense of market competition between the two nations.
Currency fluctuations are adding another layer of complexity to the situation. The New Zealand dollar experienced a nearly 3% depreciation in August, primarily due to uncertainties linked to China’s economic trajectory.
This has cast a shadow over the prospects for commodity exports, positioning the NZ dollar as one of the underperforming major currencies during this period.
Despite these multifaceted challenges, Rabobank does not anticipate any immediate shifts in New Zealand’s monetary policy. Current indicators suggest that the Reserve Bank of New Zealand will likely maintain the official cash rate, even amidst the backdrop of rising inflationary pressures.
By staying abreast of these market trends and economic indicators, stakeholders in the agricultural sector can better strategise for the complex and uncertain economic landscape that lies ahead.
