New Zealand dairy and beef farmers can expect to benefit from the misfortunes of United States farmers struggling to cope with a devastating drought.
Worries over a reduced milksolids payout this year may now be easing and beef farmers already enjoying high prices can expect them to rise further.
The drought, widespread across the American grain-growing states, has forced farmers to reduce herd numbers as the cost of feed grain has escalated.
Westpac senior economist Anne Boniface said this was likely to have a flow-on effect.
“The increase in costs will discourage producers from increasing supply, reducing the amount available for export and pushing up prices on world markets.”
World dairy commodity prices have fallen in recent months and Fonterra has cut its forecast payout for this season to $5.50 a kg, down on this year's likely $6.05.
Boniface said one of the reasons for the price fall had been an American milk production surge encouraged by high prices in 2011.
“The drought will lower that impact,” she said. “It's hard to know what the effect of that will be because we don't know how long the drought will last for, but generally you would expect upward pressure on dairy prices. That will benefit New Zealand.”
Beef + Lamb New Zealand market development manager Craig Finch said beef farmers were already doing well with prices above US$2 (NZ$2.47) a pound.
“Pricing is strong anyway, and going forward the fundamentals were good and looked like holding for some time. Now, with the drought biting, pricing will be more than strong, it will be very, very good for New Zealand.”
High US prices would also have a ripple effect on beef prices in other markets, he said.
International grain prices had been rising steadily over the past few years and the drought had exacerbated an already difficult time for all US grain users - dairy, poultry, pork and beef.
With beef, herd numbers were now back to their lowest levels since 1952.
This meant it was likely that further reductions because of the high grain price would not mirror the panic of past years.
“Already there's a lot of talk about the expectation of prices going up and that could drive the market forward before the actual effects of a herd reduction are felt.”
- © Fairfax NZ News
Do you agree with Fonterra's decision to hold its forecasted payout at $8.30 a kg of milksolids and slash its predicted dividend from 32c a share to 10c?Related story: 'Abnormal' situation hits Fonterra forecasts