“So far our export sectors haven’t been negatively impacted by trade tensions in China but this is a key risk for exporters,” ANZ agri economist Susan Kilsby says.
She predicts a $7.30kg/MS milk price next season, more ambitious than Fonterra’s forecast range of $6.25-$7.25kg/MS.
Production in the United States has fallen, in part because of the decline in demand for low-grade whey, which is sold to China as pig feed.
Kilsby says growing demand for beef is prompting some Chinese dairy farmers to cull cows while development of large-scale dairy farms is slowing because of unprofitability, thus creating opportunities for dairy exporters.
Continued strong demand and a weak New Zealand dollar will underpin another season of strong meat prices with beef benefiting from NZ product being diverted from the US to satisfy Chinese demand.
“While beef exports to China are still low compared to our competitors, the Chinese market’s appetite for Kiwi beef is growing rapidly, which is encouraging for local farmers,” she says.
Traditionally, prices ease at the peak of the season but that did not happen this year because of demand for protein from China, which she described as insatiable because of the shortage in domestic pork production.
Kilsby warned China could overheat with new competition from Brazil, Argentina and Ireland, which have or are seeking to become approved beef suppliers.
“While the lift in demand from China can only be described as fantastic for NZ, it does bear some of the hallmarks of the rampant Chinese demand for dairy products, which occurred in 2015, only to crash away as importers overestimated end-user demand.”
The number of NZ lambs killed in the year to mid May was 5% lower than the previous year and Kilsby questions whether the forecast 19.05m lambs will be processed given ewe lamb retentions on the back of high ewe prices.
Lamb weights are on average 0.6kg higher this year than last, alone boosting returns to farmers by 3%.
China is underpinning demand for lamb, a market she says increasingly wants high-value cuts.
The market for coarse wool remains weak but finer crossbred and lambs’ wool have had their moments though prices fell recently.
“Chinese manufacturers appear to be even less committed to purchases due to the uncertainty of end-market demand.
“The trade war between the US and China is making factories in China take a more cautious approach as they are less certain they will be able to move finished goods.”
