Farmers may not get much from the Budget but prospects are looking good in export markets

The agriculture sector may not get the recognition it deserves in this year’s budget, nor much assistance along  the  road  to  reducing  methane emissions — but  at  least farmers  can take  satisfaction (as New Zealand  emerges into  the  post-Covid  era)  that  returns   for the  bulk of the  sector’s output  have  been  strong.  The prospects are that high prices for  most products will be  sustained  next season.

The latest  Global  Dairy Trade  auction this week saw prices  easing  slightly—but  for  the product  that bears  the  greatest influence  on Fonterra’s  farmgate milk price, whole milk powder, it is still 54%  higher  than  at this time  in the  previous season.

Analysts are confident it will stay around that  level next season.

The other encouraging sign for primary producers  is  that  prices  in the  meat  sector  are  buoyant.  This  week  Westpac lifted its farmgate lamb forecast to at least $8/kg, and sees it possibly rising to over $9.

Senior agri-economist Nathan Penny said that was great for farmers’ wallets.

“As, in particular, Covid vaccines roll out and more and more people head back to restaurants… we’re expecting that to lead lamb prices higher.

“Normally prices are falling at this time of year, so that’s sort of pointing to some real underlying strength in demand.”

Penny  believes broad strength across NZ’s key export markets should give a boost to all meat sectors.  He estimates farmgate beef prices to lift  to around $5.50/kg by spring – but the  US dollar could bring that figure back.

Argentine   has just slapped  a  30-day  ban   on  beef  exports.  This looks likely to give  NZ exporters  a window  into  both the US  and  European  markets.

Venison prices, which have slid all year and remain weak, could come back with post Covid-19 demand from key markets, Penny said.

“We see light at the end of the tunnel for venison producers. In the key German market, the Covid vaccine rollout will help boost demand and venison prices over the year.”

While dairy prices slipped in the latest GDT event auction  they remain elevated, boding well for payments to farmers for next season, analysts say.

Both the global dairy trade price index and the whole milk powder price index eased 0.2%.

“This result, even though it is lower than the last event, does provide evidence that demand for dairy remains robust,” said NZX dairy analyst Stuart Davison. “Buyers are still very happy to pay more than US$4000/t for NZ’s whole milk powder”.

ANZ agriculture economist Susan Kilsby said prices are still “extremely high” and appear to have stabilised at this level.

“Overall, dairy commodity prices are holding at a strong level”.

Kilsby thinks there is unlikely to be a strong surge in global milk supply in the near future as supply in most regions remains constrained by environmental regulation or high feed prices.

For this season, Fonterra has forecast a milk price for farmers of between $7.30kg/MS and $7.90.

Westpac’s Nathan Penny said he expects Fonterra to lift and narrow its range in the week ahead towards his forecast of $7.90kg/MS, given the strong prices over recent auctions.

For next season, economists at the major banks expect the co-operative to forecast a milk price of between $7.30 and $8.

Other industry observers believe Fonterra’s  management,  which  is  consulting  with its  farmer-suppliers  on  a  reformed  capital  structure,  will pitch  its  payout as  high as it can,   in  order to  get  an overwhelming  majority  on  board for  the  changes.