Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


The worm turns for dairy prices and interest rates

The worm turns for dairy prices and interest rates

Dairy prices head south, as interest rates head north and the NZD remains strong.

Improving sheep sector incomes not out of the woods yet.

The record dairy price run has come to an end, according to the first ASB Farmshed Economics Report.

“Overall GlobalDairyTrade auction prices have declined a tad under 20 percent since February,” says ASB Rural Economist Nathan Penny. “And this may be enough to take the cherry off the top of this season’s record farmgate milk price.”

“Driving prices down is a stellar late season production run. We expect milk production to be up 11 percent this season compared to last, so in this sense, production giveth, but it also taketh away.”

Meanwhile, lamb prices continue to improve, with prices averaging 18 percent higher than the same period over 2013.

“We expect lamb prices to continue to rise over the remainder of the year due to improving international demand and tight local and Australian supply. However, prices remain below the five-year average for this time of year, with the lingering effect of drought still slowing down production.

“With wool prices going nowhere fast, it’s going to be another season before the sheep sector incomes return to pre-drought levels,” says Mr Penny.

Turning to the financial markets, interest rates are marching upwards following the RBNZ’s March Official Cash Rate increase. Moreover, the RBNZ has signalled more increases to come. “We agree that another 25bp rise is on the cards this month, but are not as convinced about the extent of subsequent hikes implied by the RBNZ forecasts.”

The NZD has lifted around 5 cents against the USD since the end of January as commodity prices hit or neared record highs and the RBNZ began lifting the Official Cash Rate.

“A firmer USD is the key to a lower NZD/USD exchange rate in 2014. However, if the USD remains weak then the NZD/USD may stay stronger for longer.”


Outlook

ASB expects dairy prices have further to fall says Mr Penny. “Overall prices have roughly another 10 percent to come down from today’s level before they begin to stabilise and recover.”
“Looking at the meat and wool sector, we expect lamb prices to keep rising over the remainder of the year, while beef and wool prices are set to tread water.”
Interest rates are set to rise steadily over the next two years concludes Mr Penny. “In contrast, we expect the NZD to ease back from current highs. Although, crucial to this outlook is an improving US economy and a firmer US dollar.”

About Farmshed Economics
Farmshed Economics is a new monthly report that gives ASB’s economic take on recent rural developments and includes ASB’s outlook for rural commodities and the relevant financial markets. Each quarterly Farmshed Economics will have a special feature on a relevant topic.
If you would like to receive ASB updates and reports by email: https://reports.asb.co.nz/register/index.html
The full report is attached and available online.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Research: ‘Ageing Well’ Science Challenge Launched

Science and Innovation Minister Steven Joyce today launched the Ageing Well National Science Challenge, confirming initial funding of $14.6 million. More>>

ALSO:

Scoop Business: Govt Resisting Pressure To Pump More Cash Into Solid Energy

Prime Minister John Key says it is “not the government’s preferred option” to make a fresh capital injection into the troubled state-owned coal miner, Solid Energy, but dodged journalists’ questions at his weekly press conference on whether that might prove necessary... More>>

ALSO:

Lagest Ever Privacy Breach Award: NZCU Baywide Accepts “Severe” Censure In Cake Case

NZCU Baywide says that once it was found to have committed a breach of a former staff member’s privacy, it had attempted to resolve the matter... the censure and remedies for its actions taken almost three years ago are “severe” but accepted, and will hopefully draw a line under the matter. More>>

ALSO:

Scoop Business: PayPal Stops Processing Mega Payments; NZX Listing Still On

PayPal has ceased processing payments for Mega, the file storage and encryption firm looking to join the New Zealand stock market via a reverse listing of TRS Investments, amid claims it is not a legitimate cloud storage service. More>>

ALSO:

Housing Policy: Auckland Densification As Popular As Ebola, English Says

Finance Minister Bill English said calls by the Reserve Bank Governor for more densification in Auckland’s housing were “about as popular in parts of Auckland as Ebola” would be. More>>

ALSO:

Crown Accounts: NZ Government Deficit Smaller Than Expected In First Half

The New Zealand government's operating deficit was smaller than expected in the first six months of the financial year, as the consumption and corporate tax take rose ahead of forecast in December, having lagged estimates in previous months. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news