Farmers can take heart at prospects

Despite the strong NZ dollar, farming prospects are good. Economists are in unison that the medium to long- term prospects for agriculture are swimmingly good. Farmers have heard it many times before - the demand for food is expected to rise from the westernisation of diets in developing nations, hungry China and India will consume more than before and increased competition for land space will emerge with the growing of biofuels. It's just the little, ticklish matter of a world in an economic recession and nil growth that is the problem. The New Zealand dollar has been trading in the mid-60-cents range against the United States currency and the common belief is this is bad and hurts exporting opportunities. So the 25.8 per cent rise in whole- milk powder prices earlier this month on Fonterra's monthly online auction to US$2301 (NZ$3447) a tonne flummoxed most experts reports The Dom Post. Westpac senior economist Doug Steel says the strong currency appeared to be "out of kilter" and was putting a lot of pressure on the agricultural sector, even a week before the price leap. On reflection, maybe the dollar was indicating that a commodity price rise was on the horizon, he says. "I believe the commodity price is a key factor where the dollar goes. The dollar, up at 67c, felt out of line, but when we get a 25 per cent lift, it feels more in line. It's not a level awfully great for profitability, but it's better than where it was. "In hindsight, it's become increasingly evident that the NZ dollar leads commodity prices and all market participation. Markets are forward looking and often the kiwi rises, and that is telling us something; for example, it's predicting that prices might be rising on world markets." When milk-powder prices rose, the dollar seemed less of a scary prospect. With further reflection, experts can see signals were appearing beforehand in the future markets. Another hint might have come from rising crude oil prices. Steel remains unconvinced that farmers will see more gains in milk- powder prices in the short term, conceding only that the market has bounced off the bottom. He feels prices will plateau for another six months before sustained improvement arrives. The dollar will likely be above 70c by the end of next year, he says. There could be some "pullback" in the next three to six months to the low 60c, otherwise up it will go. "What will happen next? Ultimately it will be about what the world economy evolves into next year. Indicators for global growth are pointing upwards, and if the world grows, then income increases and demand for food increases and commodity prices rise, and usually the kiwi dollar follows suit."