Positive outlook for agriculture

In its annual NZ Agriculture in Focus report, the agribusiness bank says global demand for some agricultural commodities  such as dairy and sheepmeat  is increasing. General manager Ben Russell said that although global and domestic economic conditions seem to have turned a corner and were expected to gather momentum in 2010, the recovery remained fragile reports Stuff. "While conditions have definitely been improving there remain a number of downside risks," he said."The NZ dollar remains high, inflicting serious head-winds on exporters, there are continuing tighter credit conditions and economic recovery remains subdued in key export markets, such as Japan and the United States." Improving fundamentals should help sustain most of the gains in global dairy prices achieved in late 2009, the Rabobank report says. However, the pace of recent price rises may overshoot in their bid to adjust to the new market dynamics. This may lead to some correction in the near term, with evidence of this in the January and February Global Dairy Trade auction results. "Along with dairy, sheepmeat is also well placed to capitalise on the positive outlook," Mr Russell said. "Different to dairy though, is the fact that NZ lamb actually seemed to defy the global downturn, with farmgate prices reaching record levels during the 2008/09 season." The success of sheepmeat has largely been a story of tightening supply following a number of years of tough operating conditions. Drier-than-average weather in 2007 and 2008, relatively low prices for lambs and the prospect of better prices for other commodities (particularly dairy) saw many producers exit the industry or reduce their flock size. A return to positive economic growth in key export markets in 2010 should support a general increase in global meat demand, including for lamb. However, this is expected to be a slow and steady improvement, and the high dollar had led to disappointing farmgate prices in the first half of the new season. The outlook for the beef,  and deer  sectors was not yet as positive."Beef is being held back by subdued demand, in particular in the US, and the high currency. For deer the story again is one of consumption, with both industries waiting for their key export markets to fully recover from the economic downturn.