Commodity export prices provide some cheer, even for those downcast Fonterra farmer-suppliers

NZ lamb export prices have hit their highest level since 1982. That mightn’t be good news if you are contemplating a roast leg of lamb for the barbecue this weekend.

But for NZ meat producers that, and the high prices being earned in markets like Japan for beef, suggest it’ll be a good season for NZ’s meat producers.

This is despite the global uncertainty stemming from trade wars particularly between China and the US, two of NZ’s main markets. The outbreak of swine fever in China is likely to sustain demand for other meat such as beef.

Trade authorities note the global growth outlook has deteriorated sharply and trade tensions have escalated dramatically.

Even so, the terms of trade in recent months have been moving in NZ’s favour and analysts believe they will remain strong. Commodity prices have been shielded by continued demand for soft commodities and favourable supply factors. In contrast, elevated global uncertainty seems to be weighing on domestic firms’ sentiment, investment and employment.

Lamb export prices reached their highest level since this particular statistical series began in 1982. Both lamb and beef prices rose during the latest quarter, up 4.7% and 5.3% respectively, on the back of keen overseas demand.

Dairy product export prices have also moved up, providing some relief for the financially beleaguered co-op Fonterra – as well as other dairy exporters.

They rose 11% in the June quarter, with prices for milk powder up 11%, butter up 13%, and cheese up 3.1%. Dairy volumes fell 9.3%, following an 18% rise in the March quarter, also seasonally adjusted.

Prices for forestry products were the only major export commodity to fall in the quarter, down 1.7%. Seasonally adjusted volumes for forestry products also fell, down 1.9% on the quarter.

Total export volumes fell 2.6% but prices lifted 3.4%.

The total value of exported goods was up 0.2% to $14.3bn.

Import volumes were down 3.5%. Prices, however, lifted 1.8%. The total value of imported goods was down 0.9% at $15.3bn.

The other factor working in the favour of NZ’s farmers in export markets has been the declining NZ dollar, which has fallen for six straight weeks.

Currently at the 63c level against the US dollar, it may test the 60c mark in coming months, particularly as the Australian dollar which has also been on the decline (and is currently around 67Ac against the greenback) is tipped to go below 65Ac.

So when Fonterra confirms next week the dismal news of its bottom line loss of $590-675m this year, (a 37c to 42c loss per share) and its decision not to pay a dividend, farmer shareholders may take some consolation the predicted payout for the new   season (in the $6.25 – $7.25 range) could be closer to the top end of that range.

Unless of course Fonterra finds it has to take even more steps to cut its debt.

Perhaps those dairy farmer-suppliers to Fonterra should as a precaution, decide to mix it a bit with sheep farmers, and rear lambs at the back of the cowshed.

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