ASB: Taking stock in the New Year
Farmshed Economics Report
16 January 2015
Taking stock in the New Year
• Dairy markets moving back into balance over 2015.
• Beef prices off the boil, but still simmering.
• Lengthy period of low interest rates ahead.
While 2014 was a year of big moves in the dairy markets, with record highs and lows, 2015 is shaping up as a year with more moderation, according to the latest ASB Farmshed Economics Report.
“After last year’s steep falls, we expect dairy prices to recover gradually over the year as dairy markets move back into balance,” says ASB Rural Economist Nathan Penny.
Also moving more into balance, albeit from the opposite direction, are beef prices. “Over the last two months beef prices have gone from a boil to a simmer. With the US beef market still tight, we expect beef prices to remain high over 2015, albeit back from recent records.”
After a better 2014, lamb and wool prices have started 2015 under pressure. This pressure may continue over the next couple of months on the back of soft demand, before strength returns mid-year.
Meanwhile, New Zealand appears set for a lengthy period of low interest rates. In particular, falling petrol prices are likely to keep inflation below the Reserve Bank’s target band for much of 2015.
“Weak inflation is likely to keep the Reserve Bank on the interest rate sidelines for most, if not all of 2015,” Mr Penny says.
“If the ducks line up, we also expect the NZD to fall modestly against the USD and the yen. But in particular, this modest fall is contingent on the US economy continuing to improve,” Mr Penny says.