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Demand for the majority of New Zealand's export commodities has experienced a decline in intensity

New Zealand 20.06.2023
Source: www.farmersweekly.co.nz
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ANZ agricultural economist Susan Kilsby has noted that there has been a recent softening in global demand for most of New Zealand's export commodities, primarily due to China's slower-than-expected economic recovery. 

In the June edition of the bi-monthly Agri-Focus newsletter titled "Winter Chill," Kilsby stated that while farmgate returns for most industries are at or above a five-year average, increased costs are putting pressure on profitability.

Demand for the majority of New Zealand's export commodities has experienced a decline in intensity

ANZ agricultural economist Susan Kilsby has noted that there has been a recent softening in global demand for most of New Zealand's export commodities, primarily due to China's slower-than-expected economic recovery. 

In the June edition of the bi-monthly Agri-Focus newsletter titled "Winter Chill," Kilsby stated that while farmgate returns for most industries are at or above a five-year average, increased costs are putting pressure on profitability.

One significant cost factor impacting heavily indebted businesses is the rapid rise in interest rates. Kilsby highlighted that these interest rate increases are taking a toll on businesses, as they are struggling to cover their costs. In the ASB Commodities Weekly, economist Nat Keall observed disappointing data from China for May, including a deceleration in economic growth compared to April figures. Keall expressed the view that any growth in demand from China for key New Zealand primary exports would not be enough to offset weaker demand from other markets.

The ASB commodity price indices have reached their lowest levels since late 2021, both in New Zealand dollar and US dollar terms, with decreases of 13% and 17% respectively. Over the past 18 months, higher interest rates have resulted in an additional 60 cents per kilogram of milksolids in debt servicing costs for dairy farmers, with a potential further increase of 5 to 10 cents. However, the overall debt burden for dairy farmers has reduced by $5 billion, from $41 billion to $36 billion, due to debt repayments over the past five years.

ANZ reported that international prices for beef and lamb have declined, although farmgate schedules remain stable. The demand for beef in the United States and China has weakened while supplies from Australia and New Zealand have increased. Kilsby mentioned that demand from China for New Zealand beef remains steady but not exceptional, indicating that Chinese consumers' confidence in the economic outlook needs to improve before a rise in demand for imported foods is expected. Following China's post-lockdown reopening, the surge in demand for lamb products was short-lived as importers faced challenges in promoting sales. Consumers in China are financially constrained and lack the confidence to spend as they once did on relatively expensive products.

Kilsby also expressed concerns about weaker demand in China for dairy commodities, especially whole milk powder. Although global milk supplies are growing moderately, any growth in the current environment is exerting downward pressure on prices. ANZ has forecast a farmgate milk price of $8.20 for the 2022-23 season, with a slight increase to $8.25 for the new season.


Link to the source: https://www.farmersweekly.co.nz/markets/softer-demand-for-most-nz-export-commodities/



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