Allan Barber says the big question amid all the global uncertainty is just how long demand will continue at these elevated levels as markets appear immune to risk

The present geopolitical situation reminds me of a film I saw nearly 60 years ago called King of Hearts. It was an anti-war comedy drama set in the first world war in a small town in northern France which the Germans booby trap to blow up. All the residents leave except for the occupants of the local insane asylum who are free to roam the town in festive clothing unaware of the imminent threat and an English Private given the task of finding the bomb which he eventually finds by accident in the nick of time.

Everybody returns to the town, the asylum’s occupants go back into the asylum, and the Private chooses to desert and admit himself to the asylum stark naked with nothing but his pigeons in a cage. The obvious question is who really is mad – the people in the asylum or the politicians and generals waging war.

At least WW1 ended with a winner and a loser for a few years, but it is hard to see how the wars in Ukraine and Iran can possibly reach a conclusive outcome. President Trump is searching for a way out of the complete mess he started with Israel’s encouragement, while Putin is in much the same situation with neither willing to lose face. In the meantime, the rest of the world must adjust to higher fuel prices, rising input costs, and trade disruption with no certainty about when or even if these will return to normal.

I understand the Ayatollah Ali Khamenei had declared a fatwa against nuclear weapons and opposed any blockage of the Strait of Hormuz. Removing him has directly resulted in his replacement by hardliners who have discovered how easy it is to hold world oil supplies to ransom and know Iran’s ability to endure pain is greater than the USA’s.  

At the same time our agricultural trade position seems to exist in a parallel universe with red meat and dairy prices continuing to rise to satisfy demand for protein which traditional competitors are struggling to meet.

I never thought I would see the day lamb prices reached such heights with sales to all our major markets booming. AFFCO’s winter contract price of $12.20 per kilo is equivalent to nearly $250 for a 20kg lamb, an unprecedented figure which will put a smile on the face of any farmer able to supply. Even if the volume of lambs at this price is relatively small, every supplier should receive a minimum of $220 per head from all processors. It also sets a benchmark for new season’s lambs leading up to Christmas.

April continued the trend with red meat exports hitting $1.3 billion or 15% of total exports for the month. Beef exports to the USA were 54% higher, while lamb sales to China, UK, EU and USA all increased, despite talk of tariffs being imposed at the behest of American sheep farmers who think they can satisfy demand without imports. The red meat sector is in a sweet spot because of cyclical downturns in the US cattle herd and the Australian sheep population.

The big question amid all the global uncertainty is just how long demand will continue at these elevated levels. Share markets appear impervious to risk with prices buoyed by the AI boom, but at the same time bond yields are rising to uncomfortable levels. Recent commentary by The Telegraph’s International Business Editor Ambrose Evans Pritchard suggests high government debt is more damaging than the current oil price and will cause a sudden fall in share markets sooner rather than later.

He also argues the apparent stability in the oil price will not last much longer as the shortage really bites, unless Trump miraculously finds a way out of the Iranian impasse. At the time of writing he claims an agreement is near, but refuses to give way on any of the American demands.

New Zealand cannot possibly remain immune to global developments even if our total debt to GDP ratio is still lower than many other countries. Any downturn in the global economy will make itself felt in lower demand for our exports, while the higher oil price must inevitably fuel inflation. This combination will reduce domestic activity and result in higher unemployment.

Whichever government assumes power in November will be faced with an extremely unpalatable set of policy decisions, none of which will keep many sections of the electorate happy. One thing is certain – there won’t be any spare cash to throw around.

My question is whether we have any option but to carry on pretending life is normal, while the madmen continue to wage wars they cannot win.