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.