Chinese economic concerns had spilled over into share and commodity markets.
The country’s equity had plummeted in recent weeks, leading global markets lower and leaving the Chinese government scrambling to remedy the situation.
Market volatility was expected to continue with economic analysts suggesting China’s performance would likely dominate global financial markets for the rest of the year.
While questions over the Chinese economy and its impact on New Zealand exports loomed large this year, equally, offsets like a lower NZ dollar and interest rates were in play, ASB rural economist Nathan Penny said.
But still ASB had trimmed this season’s milk price forecast by 50c to $4.10/kg.
ASB maintained dairy prices would move higher across 2016.
“With this in mind we maintain our forecast of $6.50/kg for the 2016-2017 season,” Penny said.
On a brighter note for farmers, a lower NZ dollar and interest rates were offering some respite with short-term interest rates forecast to fall over the next six months.
With inflation set to remain very low it was expected the Reserve Bank would cut the OCR twice this year, Penny said.
The NZ dollar was also doing its best to increase farmgate returns.
After ending 2015 above US$0.68, the dollar had fallen as low as $US0.63 early in the new year.
“We expect the NZ dollar to range in the low to mid-60s over 2016,” Penny said.
In the meat sector, lamb prices had started off where they left off in 2015.
“That is soft with very little sign of fresh upward impetus.”
But beef prices were robust.
“We expect beef prices to remain healthy over 2016 and they may well challenge the 2015 record highs at some stage,” Penny said.
Beef prices had started the year healthy at 10% above the five-year average but exports to economically troubled markets could be restricted by the lack of demand creating a need for surplus product to be absorbed into other markets.
For the arable sector grain prices continued to slide and were expected to weaken further over 2016.
“We expect beef prices to remain healthy over 2016 and they may well challenge the 2015 record highs at some stage.”
Nathan Penny
ASB
“With this in mind a price bottom is proving elusive and may have to wait until 2017,” Penny said.
ANZ rural economist Con Williams predicted increased offshore volatility in 2016.
He suggested it would be 2017 before the dairy industry realised a marked improvement in fortunes.
The situations in Europe and China were ongoing factors for Kiwi farmers in 2016.
“For example, the overcapacity in the European Union zone would ultimately ease but from there questions arise over what the actual milk price will be after the original glut caused prices to crash so low.
“China, our biggest export market, will naturally be influential in determining how farmers fare this year,” Williams said.
The perception was that China was trying to become a more sustainable and self-sufficient dairy producer but there was no implicit indication from the Chinese government that was the case, he said.
Meanwhile, Shanghai-based Westland Milk Products general manager for China, Gregg Wafelbakker, believed the future with China was still bright.
He said the potential impact of much of China’s slowing growth and volatile sharemarket had been exaggerated in the media.
“Given the value of China to Westland, indeed the whole of the NZ dairy industry, it is important that we understand what is happening,” Wafelbakker said.
“GDP growth in China has been slowing, which appears to be causing some anxiety, especially for trade partners of China.
“In the past decade GDP growth has slowed from 11% to about 7%.
“However, with GDP now around US$11 trillion, the Chinese economy is the second largest in the world.
“Even at these more modest growth rates of around 7% the actual increase in economic value is still huge,” he said.
