Prospects are less optimistic for dairy with Rabobank senior dairy analyst Michael Harvey predicting imports to China to be 20% lower than last and demand weaker because of a 1% lift in production from Britain and Europe.
“It’s shifting the balance to exportable surplus, which is creating pressure on the global market.”
Harvey says Rabobank will soon provide a new milk price guide for next season but warns farmers it will be lower than this year.
The bank bases its forecasts on 2020 global economic growth of 0.7%, disrupted supply chains, a contraction of food service in Europe and the United States and lower production from processors.
A spike in the global price and demand for meat and dairy has been driven by consumers stocking up ahead of expected lockdowns and is expected to be short lived.
Harvey says New Zealand dairy farmers will have some insulation from a low exchange rate and an expected 1% drop in milk production because of drought but countered by greater export volumes out of Europe.
A build-up of dairy inventory late last year means China is not expected to be an active buyer in 2020, a situation exacerbated by February’s covid-19 shutdown, greater local production and liquid milk processors diverting product to powder and long-life products.
The ANZ does not expect the domestic economy to recover. Its business outlook for March has plummeted to its lowest level ever at minus 64. A positive reading indicates optimism.
Statistics NZ has prepared trade data for the first 25 days of March, when the covid-19 outbreak was determined, comparing it with the corresponding period in 2019.
It reveals imports from all countries down 3.4%, exports to all countries up 0.5%, imports from China down 14% and exports to China down 12%.
Countering that has been an 11% decline in the last month of the NZ dollar against the US dollar, which Holgate says has helped export values.
The key period for meat exporters will be the next three months when Chinese activity gradually increases but economies in Europe, Britain and the US start to slow.
Containing covid-19 has delayed the recovery of China’s pig industry from African swine fever and Holgate says it still faces a 15% to 20% shortage in protein, leading to forecasts of significant demand for sheep meat and beef in the second half of this year.
He expects prices to soften through that transition but recover later in the year with Chinese demand, lower supply out of Australia and a lower dollar but levels will be lower than last year.
Food service in Europe, Britain and the US faces an uncertain future.
“I think there will be downward pressure on high-value cuts, which will impact on the whole carcase,” he says.
US demand for manufacturing beef has remained steady, driven by food retail as consumers stock up on supplies.
Individual states are managing their covid-19 responses so some fast food outlets are open but not enough to underpin demand for NZ beef.
Towards the end of last month the NZD/USD cross-rate rose to about US60c, having been as low as 56c on March 23. It began the year at 67c.
The fall in the NZD, though coming late in the season, will be worth 25c/kg milksolids in the farmgate dairy price, NZX Agri analyst Amy Castleton said.
While comforting, it is a theoretical observation because the co-operative has a full exchange rate hedging policy in each season so any fall in the NZD means more to next season’s milk price.
ASB senior rural economist Nathan Penny said world prices for all commodities fell in the week ended March 20 by 3.8% in USD but rose 1.5% in NZD terms.
“A lower NZD will help the NZ commodity exports rebound faster than most.
“At times like this it is comforting to be a food exporter.”
