Optimistic outlook for NZ commodities

GERALD PIDDOCK
Last updated 07:19 14/01/2014
Milk Powder Store, robot packing at Clandeboye dairy factory.
STACEY SQUIRES/Fairfax NZ
MILKING IT: Continuing demand from China should see milk powder prices remain high in 2014. The outlook is also good for other New Zealand commodities.

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Analysts are predicting a positive outlook for New Zealand-produced agricultural commodities in 2014 as demand continues to outstrip supply of dairy, beef and wool.

Milk powder prices should hold up "pretty well" this year and any significant easing would not occur until the second and third quarters of 2014, Rabobank director of dairy research Hayley Moynihan said.

"Our commodity price in US dollars still has whole milk powder sitting at US$4500 per tonne by the time it gets to the third quarter of the year."

The market was still short of product and it was categorised by continous vigorous buying from China.

While production and exports were rising, the market would absorb that because over the past six to nine months buyers had been squeezed out by China, she said.

This trend would flow through to other commodities such as butter.

"Cheese is a little different, we haven't seen the same strong runup in cheese prices because there is still significant cheese stocks in the United States."

ANZ's December Agrifocus Report also expected milk powder prices to drift lower as demand from China eased off in 2014.

The main factor for a drop in prices in 2014-15 is milk supply levels from the northern hemisphere, which peak in March-May.

"Our current forecast milk price for 2013-14 continues to creep up toward Fonterra's current forecast of $8.30/kg milk solids. Many others have forecasts around the mid $8s," the report said.

Strong international demand and tight supply would mean the beef industry faced brighter prospects this year, according to Rabobank.

The decline of lean beef in the United States, New Zealand's largest beef export market, meant New Zealand product would be in demand.

However growing competition from India should be expected, with increased local Indian supply available for export.

New Zealand's beef sector would be hoping for increased returns in 2014 as supply tightened domestically and global beef demand remained strong, Rabobank animal proteins analyst Matt Costello said.

Improved seasonal conditions in the second half of 2013 helped turn the fortunes around for New Zealand farmers since the drought and set up an improved spring and summer for 2013-14.

Costello said the US would experience a significant decline in beef production in 2014 because of the urgency to rebuild the US herd. "If weather permits, US producers will need to grow cattle numbers which are now at 60-year lows. With tight US supply forecast for 2014, this will help drive strong demand for New Zealand product."

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New Zealand Beef+Lamb's new season update reported steer and heifer prices at 434c/kg and bull beef prices at 439 cents when the US dollar sat at 79 cents. It also quoted lamb prices at an average of $98 for a mid exchange rate for an 18.4kg lamb.

B+LNZ chief economist Andrew Burtt said this prediction was largely unchanged going into 2014 apart from a slight lift in lamb values to $100.

This lift was a result of good feed availability and farmers finishing their lambs to heavier weights.

"Things generally look to be pretty good across the country."

He agreed with ANZ's December Agrifocus Report, which predicted the usual post-Christmas schedule decline would not be as excessive this year because of the low levels of frozen lamb and this year's smaller crop.

Demand was strong and there was not a lot of frozen product around, he said.

Deer Industry New Zealand chief executive Dan Coup was "cautiously optimistic" that venison prices would rise this year after a subdued 2013.

This was because the latest economic data showed a drop in unemployment levels,which showed a more positive outlook of European markets, New Zealand's biggest export market for venison.

"The signs are that the economic recession in Europe may be starting to fix itself," Coup said.

"The other reason for optimism is that we're confident that people are out looking to diversify markets in response to the softness and the strength of the New Zealand dollar relative to the euro."

These new markets included more venison going into North America and possibility into China.

He hoped that could result in a lift in the venison schedule for 2014.

"The Northern European economies, particularly Germany which is still the biggest market, hasn't been terrible but they sit on the euro currency, which has been dragged down by the poorer performing countries.

"Currency has been a huge factor for us, as well as a general softening of our markets," Coup said.

The outlook for strong wool was also bright due to demand exceeding supply.

Last year's drought had resulted in farmers killed their ewes and this had created a shortage of wool, Elders Primary Wool national wool manager Simon Averill said.

Wool volumes coming through for sale were well down from last year as a result of the drought. The outlook looked good as long as people remained concentrated on initiatives to sell carpet.

"We want the price of wool to keep increasing. It seems to have found a level at the moment."

The first wool sale of the year last week in Napier saw a large offering of wool where prices improved from levels seen at Christmas.

"There were 15,000 bales sold and that was a good sign that there's plenty of demand out there.

"I think where we are at the moment is a bit of a level," Averill said.

The best style crossbred fleeces made 535c per kilogram, average fleeces made 495c and poorer fleeces sold for 435c.

Averill hoped values would lift higher as the effects of demand outweighing supply became more prominent.

"I think we'll see that there is less wool around than what people have predicted and that might help drive the price up."

- Waikato Times

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