New Zealand Agriculture 2007 – Sector Summaries

New Zealand Agriculture in Focus 2007 – Sector Summaries

Beef:

The global beef boom is to continue in 2007, with New Zealand benefiting from continued demand both offshore and at home.

Recent higher slaughter rates in the US, combined with higher feed grain prices are expected to restrict US herd and beef production growth in 2007. US beef demand is also expected to benefit from higher prices for chicken; a major competitor to beef in recent years in the fast food sector, a key destination for New Zealand’s manufacturing beef.

New Zealand producers are also likely to continue to benefit from the ongoing market access restrictions on key competitors, such as the US, which faces ongoing difficulties regaining its foothold in the lucrative Japanese and Korean markets.

In the US, despite some easing in beef demand in 2006, US dollar prices for imported 90CL beef remained relatively steady. Prices were supported by the reduction in supply of imported beef - a result of Uruguay’s change in focus to capitalise on the Russian and EU markets, which are normally supplied by the Foot and Mouth Disease troubled Brazil and Argentina. However Uruguay is likely to partially refocus on the US during 2007.

Sheep Meat:

With solid markets for sheep meat internationally, New Zealand producers are likely to be impacted more by domestic events in 2007.

The strength of the New Zealand dollar, seasonal procurement activity and climate variations can be expected to provide challenges over the coming year.

Lamb prices internationally have eased and now remain in touch with other meat alternatives, such as beef, while retaining their premium positioning. This moderation in prices bodes well for growth in lamb demand as its high quality characteristics continue to attract consumers.

New Zealand increased its export volumes to key market destinations in 2006, with exports to the United Kingdom, Germany and Belgium all increasing. The US market also remains an important destination for around 10 per cent of New Zealand’s sheep meat exports.

Exports to Japan increased 40 per cent in the three years to 2005 and to September 2006 were 13 per cent higher than the previous year. Demand is expected to be sustained in 2007.

New Zealand lamb production in 2007 is expected to be similar to 2006. Early spring slaughter rates have been 10 per cent higher than the same period last year. However, the variable spring weather has seen lighter average weights processed.

In terms of competition, Australian lamb supply is expected to be good in early 2007. The drought is likely to slow the rate of Australian lamb production growth in the future, but maintain the current level of competition in export markets in the near term.

Dairy:

New Zealand’s dairy industry is set to capitalise on its recent growth in 2007 as global markets try to quench their thirst for milk.

Vigorous growth in Asia, the Middle East and Latin America will be met mainly by local supply, as governments and companies alike promote the development of dairy farming. However, not all regions will be able to meet their own requirements, and the world will still be looking for increased volumes of importable dairy product in 2007.

The combination of strong demand growth and weak exportable supply growth is expected to underpin high export prices in 2007.

The first export licences to designated markets under the Dairy Industry Restructuring Act 2001 are due to expire in June and July 2007 and, while these particular licences represent relatively small product volumes, specifically to the Dominican Republic and Canada, the new arrangements made post expiry will set a precedent for the higher value licences that expire from 2008 to 2010.

The ongoing evolution of industry structures in New Zealand will be the main feature over the coming year, as new processors make their mark, current legislation reaches some important milestones and decisions are made that will have a significant future impact on the dairy sector.

Wine:

Over production of grapes, a surplus of wines, increased competition and intense pressure on prices continue to dominate discussion and are likely to persist in 2007. Despite these difficulties, New Zealand wines continue to retain their appeal and continue to defy global trends.

As expected, the flagship variety Sauvignon Blanc continued to lead the way in production stakes, accounting for over 50 per cent of production volumes – a trend that is expected to continue.

The rate of growth is expected to ease over the medium term as land values continue to increase and the availability of suitable land becomes limited. Over the next twelve months, growth rates are expected to continue at similar levels to 2006.

While additional wine is now available from the larger 2006 vintage, overall volumes are still very small. The supply shortage for New Zealand wine should remain in the short to medium term.

Deer

Venison demand has increased in key export markets. The image of game has returned to favour, with European consumption increasing. Farmed venison has also gained market share, as some alternative game meats have been negatively impacted by Avian Influenza.

Velvet demand has also been solid. New Zealand’s most important market, South Korea, continues to experience solid economic growth. While real GDP growth is expected to slow moderately to four per cent in 2007, private consumption growth is forecast to remain at four per cent, which will provide a positive and stable basis for demand.

The combination of strong demand and weak supply growth has pushed venison prices up in export markets. As 2007 gets underway European prices are 10 – 15 per cent higher than 12 months ago, with prices for some cuts the highest for several years.

Firm demand and a lower level of New Zealand supply are also likely to provide support to farm gate velvet prices in 2006/07 and looking ahead to next season.

Keeping venison and velvet supply volumes finely balanced with market demand should provide an opportunity for steadily increasing returns within the deer industry during 2007.

Wool

While 2007 brings the prospect of firmer fine and medium wool prices on the back of the Australian drought, longer term profitability from wool production will continue to feel the pressure from rising shearing costs and stiff competition from other fibres.

Lower Australian supply into world markets is likely to benefit wool prices during 2007. With deepening drought in the 2006/07 season, total Australian wool production is expected to reduce to a 20 year low of 421,000 tonnes.

During drought, sheep generally produce finer wool. This means relatively higher fine wool production (<19.5 microns) over medium and broad wool production. With New Zealand’s production based on a greater proportion of strong and cross bred wool, this is likely to provide support to fine and medium (21-25 micron) wool prices during 2007.

The margin per stock unit between wool income and shearing costs declined to around NZD 5.60 over the past season. The cost impact combined with declining wool income has farmers seeking alternatives, such as shearing less frequently, to minimise costs.

Horticulture

New Zealand has continued to maintain its world wide reputation for high quality produce, which has, in the past, commanded a price premium. This market positioning as a niche supplier has served, and continues to serve, New Zealand well.

The competitive conditions in the international markets expected throughout 2007 will again prove to be challenging. Despite this, there will be many opportunities available to producers who are prepared to innovate in order to retain a premium position in the market.

The ban on the export of New Zealand apples to Australia has been lifted after 85 years. However the export protocols remain onerous and prohibitive to New Zealand exports, so much so that the political arguments are still raging. 2007 will see this continue with no resolution on the immediate horizon.

Kiwifruit had a tough year with competition from Northern Hemisphere fruit. Grower returns for the 2006/07 season are expected to improve from last season as the New Zealand dollar has been lower on average during the main selling period. While currency weakness has abated, good prices in export markets are likely to ensure growers see solid demand and prices in 2007.

ENDS

© Scoop Media