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27 July 1999
Economic forecasts for the dairy, lamb, wool, and beef sectors over the next few seasons are a mixed bag, says the Ministry of Agriculture and Forestry in its latest figures released today.
Significant international traumas in the past 18 months have affected international product prices. The Asian and Russian financial crises, and weaknesses and uncertainties about the Brazilian economy are all taking their toll on international product prices, and are expected to continue to influence farm-gate returns to New Zealand farmers over the next few years.
"The latest forecasts from MAF indicate that New Zealand farmgate prices for beef and lamb are expected to increase in the current season ending September 1999 from last season's levels. This is largely due to a weak New Zealand dollar relative to the US dollar and the UK pound," said Tony Wharton, MAF Policy Senior Analyst.
"Dairy payouts for the current season ending May 2000 are expected to be down on last season due to depressed international dairy product prices. Wool auction prices are also expected to drop in the current season ending June 2000 as the slowdown in world fibre demand continues." However, both dairy payouts and wool prices are expected to recover over the next two to three years as world economic condition stabilise and gradually recover, he said.
Rising prices are forecast for all products over the medium term, albeit from a low base price for some products such as wool
The medium term outlook for the dairy industry appears challenging, with continued low international prices for dairy products expected over the next few seasons. International product prices have been hit hard by the economic problems in Asia, Russia and Brazil, and recent increases in export subsidies from the European Union (EU). The export subsidies on skim milk, butter fat and cheese announced by the United States (US) recently only serves to add further downward pressure to prices.
"While it is expected that dairy product prices will continue to fall throughout most of the current season, MAF is predicting prices to start recovering towards the middle of the 2000/2001 season, as economic conditions in Brazil, Asia, and eventually Russia, gradually recover," Mr Wharton said.
Farmgate payouts for the current season ending May 2000 are expected to be down on last season's average payout due to lower international dairy product prices, but payouts are expected to recover in line with increasing international product prices over the medium term.
"The recent decision allowing spreadable butter into the EU under New Zealand's butter quota, and industry moves toward the formation of a MegaCo-op are expected to provide some positive relief to New Zealand dairy farmers in the face of unfavourable international market conditions," he said.
International lamb and mutton prices are expected to increase over the next few seasons. This will flow through to New Zealand farmers as increased schedule prices.
Lamb prices in the UK had been decreasing since January 1997 up until April 1999, due to an oversupply of competing meats on the market, and a recovery in beef consumption as the BSE crisis receded. The UK protein market continues to be oversupplied due to the strong UK Pound against the Euro, the expansion of pig and poultry production in response to the consumption shift away from beef during the BSE crisis, and Russia no longer being a viable export market for UK product.
New Zealand lamb holds a premier position in the main export markets, and the medium term outlook for lamb is for rising international prices, Mr Wharton said. A slow recovery in pelt and wool prices, together with these rising lamb prices, will lead to increasing New Zealand lamb schedule prices. MAF is estimating the all-grades average lamb schedule at $40.20 / head for the current season ending September 1999, with a forecast of $41.40 for the 1999/2000 season.
"The projected rises in lamb schedule prices are mainly due to a decline in UK sheep meat production, and a reduction in pig production which should lead to a recovery in pork prices. Lamb price increases will be moderated by a continual decline in beef prices as EU beef production exceeds consumption, and by the recent US decision imposing tariffs on lamb imports."
Wool prices in New Zealand were hit hard by the effects of the Asian Crisis and restructuring in China's wool processing industry. The world wool processing industry has been suffering from over-capacity, and a slowdown in demand has depressed auction prices, particularly for fine and halfbred wools.
The average all-grades clean wool auction price for the season ending June 2000 is expected to fall a further 6% in price on the latest season ended June 1999, where the price decreased by 8% from the previous season's price of 449 c/kg. Auction prices for wool are not predicted to begin a sustainable recovery until late in the current season, when growing levels of world demand and income growth will fuel increased demand for carpets and high quality woollen clothing.
Mr Wharton said European wool markets have shown some recent signs of improvement. The continuing strength of the US economy is expected to help lift New Zealand wool prices in the medium term, but there is expected to be a lag before the effects filter back to woolgrowers in New Zealand.
"Chinese demand for New Zealand wool will continue to have a large influence on the New Zealand auction price. In the past China purchased up to 40% of New Zealand's wool exports by volume, currently they are only buying around 19%. Chinese exports of woollen garments have been significantly affected by the Asian Crisis, and the state owned Chinese textile sector is currently undergoing large-scale rationalisation.
"The recent news of the release of Chinese wool import quotas is good news for New Zealand wool growers, and should bring some relief to New Zealand auction prices when Chinese buying resumes, although the extent of this will depend on the actual volumespurchased."
There was a positive outlook for farmgate beef prices, although the anticipated recovery of the US beef price has been slower than expected, due to flat demand and an abundant supply of pork on the market as a result of the Russian crisis. The United States Department of Agriculture has forecast a beef supply shortfall for late 1999, which is expected to lead to the long-awaited increase in US beef prices.
"The implementation of food aid to Russia is also expected to ease the oversupply of lower value cuts of beef, pig meat and poultry. Prime beef prices to New Zealand producers are forecast to rise 3% to 243 c/kg in the season ended September 1999, and a further 5% rise in the following season."
For media inquiries contact:
Tony Wharton, Senior MAF Policy Analyst (04) 498 9636.