Farmshed Economics Spring 2018
Spring is here and agricultural production has started the new season well. And unlike previous seasons, the weather has played ball.
Dairy production has hit the ground running this season. For the three months to date, production is running 5.4% ahead of the same three months last season. However, production growth in excess of this level would likely lead to additional dairy price weakness.
Meanwhile, lamb prices are starting to come off the boil. After peaking at $8.43/kg earlier in the month, prices have dropped 13 cents/kg or 1.5%. Nonetheless, the season as a whole is shaping up as a healthy one.
Also, the outlook for forestry prices is similarly healthy.
We are a little more wary over the outlook for beef prices. Global supply is strengthening. On that basis, we anticipate that beef prices will head lower over the season.
Current financial markets, however, are helping the rural sector. Benchmark interest rates dipped to very low levels over September. In fact, the 2-year swap rate fell to just 3 basis points above record lows. Also, the rising prospect of an Official Cash Rate (OCR) cut could see rates head lower. Meanwhile, we expect the NZD to underpin commodity prices in NZD terms over the rest of the year (note, though, some imported input costs may rise). And if the OCR cut scenario plays out, even more support could be on its way.