Friday, March 29, 2024

Dairy falling, lamb rising

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The record dairy price run has come to an end, the first ASB Farmshed Economics Report says.
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“Overall GlobalDairyTrade auction prices have declined a tad under 20% since February,” ASB rural economist Nathan Penny said.

“And this may be enough to take the cherry off the top of this season’s record farmgate milk price.”

“Driving prices down is a stellar late season production run.

“We expect milk production to be up 11% this season compared to last, so in this sense, production giveth, but it also taketh away.”

ASB expected dairy prices have further to fall.

“Overall prices have roughly another 10% to come down from today’s level before they begin to stabilise and recover.”

Meanwhile, lamb prices continue to improve, with prices averaging 18% higher than the same period over 2013.

“We expect lamb prices to continue to rise over the remainder of the year due to improving international demand and tight local and Australian supply.

“However, prices remain below the five-year average for this time of year, with the lingering effect of drought still slowing down production.”

But with wool prices going nowhere fast, it’s going to be another season before the sheep sector incomes return to pre-drought levels, he said.

“Looking at the meat and wool sector, we expect lamb prices to keep rising over the remainder of the year, while beef and wool prices are set to tread water.”

He said interest rates were marching upwards following the Reserve Bank of New Zealand’s (RBNZ) March Official Cash Rate (OCR) increase and the RBNZ had signalled more increases to come.

He said interest rates were set to rise steadily over the next two years and that another 25 basis points rise was on the cards this month, but he was not as convinced about the extent of subsequent hikes implied by the RBNZ forecasts.

He expected the NZ dollar to ease back from current highs although crucial to this outlook was an improving US economy and a firmer US dollar.

The NZ$ had lifted about 5 cents against the US$ since the end of January as commodity prices hit or neared record highs and the RBNZ began lifting the OCR.

“A firmer US$ is the key to a lower NZ$/US$ exchange rate in 2014,” Penny said.

“However, if the US$ remains weak then the NZ$/US$ may stay stronger for longer.”

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