Guy Trafford traces falling product prices, stunted customer demand, regulatory twisting of land use, all working to lower food production. Pasture-based livestock farming faces new uncertainties all of a sudden

Yet again the slippery slope of the Global Dairy Trade auctions continues their slow slide backwards. Fortunately, the ‘height’ the slide began from has had enough altitude to keep prices within the ‘good to positive’ range. However, unless this trend reverses soon Fonterra’s forecast for the 2022-23 season will start to be chipped away at.

The broad range they provided has created a buffer that helps having to make any short term knee jerk reactions but even this cannot sustain too many more negative sales.

Overall, the GDT weighted average has dropped by 2.9% at this weeks auction with the individual changes below:

• Butter index up 0.2%, average price US$5,204/MT
• Cheddar index up 4.2%, average price US$5,005/MT
• SMP index up 0.1%, average price US$3,524/MT
• WMP index down 3.5%, average price US$3,417/MT

SMP provided the only bright note and has returned to its position of being valued more than WMP which I can never quite understand. There have been 9 falls in the last 10 auctions and the high for WMP of US$4,757 back in March is starting to seem a distant memory. Adding insult to injury and having a similar impact upon dairy farmers pockets the Reserves Bank adjustment to the OCR today had its 6th increase since October last year going from 0.25% to 3.0% an over a tenfold increase.

Despite the poor news coming from the GDT results both Westpac and the ASB are sticking to their earlier forecasts of $9.25 and $10 respectively largely it seems through weak global production. No doubt the scratchy economy in China is making its impact felt with issues other than just Covid impacting on their domestic economy. Property markets are very shaky with several large firms facing closure and mortgage repayment ‘strikes’ occurring. A combination of issues has seen the country’s consumption and output in an unexpected slowdown in July. However, with the upcoming National Congress in November this year likely to be set to endorse President Xi for a 3rd term the Party will not be wanting too much discontent in the population to undermine this and initiatives such as lower interest rates are being enacted to soften the impacts upon consumers. Perhaps the sabre rattling in the Taiwan Straits has a bit to play here also stirring up some national fervour.

Looking at red meat returns to the farmgate, they continue to be at record levels (venison aside but that is also on the move). Price spikes from now until later September are largely due to competition between meat companies trying to keep through-put through the works viable and we have seen quite harsh readjustments later in the season as companies try to restore profits. At least one article via Rabobank regarding our biggest market China casts some doubts on sheep meats future returns. Due to changes as a result of continuing covid lockdowns New Zealand-based RaboResearch agricultural analyst Genevieve Steven said, “Reduced Chinese demand for sheepmeat has had an adverse impact on our sheepmeat exports into this market, and over the first half of 2022 they have fallen by 33 per cent on the same period in 2021." This trend she says is likely to continue into 2023.

Sheepmeats have largely been sourced by the food service sector and it hasn’t been ‘picked up’ by the take home consumer, at least not to the same degree that beef has which still appears to be achieving good returns from China. Adding to this she did say that world supplies of beef are low at the moment. Not that farmers will need to be told, but the uncertainty in returns is not confined to the dairy sector.

Sticking with the red meat sector is was a little disconcerting reading Keith Woodford’s summary of the New Zealand carbon-forestry conference. Unless there is some readjustment of the economics of carbon versus red meat the future of the red meat industry looks somewhat dire.

This readjustment needs to happen reasonably soon as while forestry can be converted back to livestock farming at any stage, to do it economically is a different question. As some-one who dreamt about farming at an early age, and left school at 16 to follow my dreams I can appreciate how unsettling it must be for young aspiring farmers to have the spectre of a greatly reduced industry to look forward too. If only we could have known how much simpler things were back in the 1970’s we should have appreciated them more. It is with a little trepidation I await the next release of New Zealand’s sheep numbers for 2022 which is likely to be below 25 million, a level last seen in the mid 1920’s.