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

 

Superu Report: Land Regulation Drives Auckland House Prices

Land use regulation is responsible for up to 56 per cent of the cost of an average house in Auckland according to a new research report quantifying the impact of land use regulations, Finance Minister Steven Joyce says. More>>

ALSO:

Fletcher Whittled: Fletcher Dumps Adamson In Face Of Dissatisfaction

Fletcher Building has taken the unusual step of dumping its chief executive, Mark Adamson, as the company slashed its full-year earnings guidance and flagged an impairment against Australian assets. More>>

ALSO:

No More Dog Docking: New Animal Welfare Regulations Progressed

“These 46 regulations include stock transport, farm husbandry, companion and working animals, pigs, layer hens and the way animals are accounted for in research, testing and teaching.” More>>

ALSO:

Employment: Most Kiwifruit Contractors Breaking Law

A Labour Inspectorate operation targeting the kiwifruit industry in Bay of Plenty has found the majority of labour hire contractors are breaching their obligations as employers. More>>

ALSO:

'Work Experience': Welfare Group Opposes The Warehouse Workfare

“This programme is about exploiting unemployed youth, not teaching them skills. The government are subsidising the Warehouse in the name of reducing benefit dependency,” says Vanessa Cole, spokesperson for Auckland Action Against Poverty. More>>

ALSO:

Internet Taxes: Labour To Target $600M In Unpaid Taxes From Multinationals

The Labour Party would target multinationals operating in New Zealand to ensure they don't avoid paying tax if it wins power and is targeting $600 million over three years through a "diverted profits tax," says leader Andrew Little. More>>

ALSO: