Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Dairy keeps title as 2011 commodity king

New Zealand's dairy herd has doubled since 1982 and dairy now accounts for 27pc of all merchandise exports. Photo / Sarah Ivey
New Zealand's dairy herd has doubled since 1982 and dairy now accounts for 27pc of all merchandise exports. Photo / Sarah Ivey

The dairy industry has been a star performer for decades, but the time has come for others in the New Zealand family of commodities to share the limelight. APNZ business reporter Jamie Gray looks at some of the primary industries that didn't make the headlines.

It's been another great year for dairy, but several other commodities aren't doing so badly either.

To have New Zealand's commodities prices moving in the same direction is rare, but sheep meat, beef, wool and log prices have all done well over 2011.

Statistics New Zealand data shows that in 2011, New Zealand's dairy herd exceeded 6 million head of cattle for the first time.

The herd has doubled in size since 1982. In that year, dairy exports of milk powder, butter, cheese, and casein represented 19 per cent of merchandise exports.

Today the proportion is 27 per cent, so dairy remains the undisputed king of the New Zealand export industry.

"I can't see that changing," ASB Bank rural economist James Shortall says. "But there have been some other really good stories out there for commodities," he says.

Farmers have enjoyed a commodities price surge similar to that of 2008, which benefited just dairy and beef.

"This time around it is a lot more broad-based," Shortall told APNZ. "So despite the turmoil that we have seen around the world, agriculture and farming are probably enjoying some of their best ever prices," he says.

The challenges facing the economies of the countries New Zealand exports to have taken some of the gloss off revenue expectations for the agriculture, forestry and seafood sectors, according to a Ministry of Agriculture and Forestry (MAF) report.

All commodities markets face stiff headwinds in the form of the strong New Zealand dollar, but MAF says the primary sector is still on target for record export income.

The ministry expects dairy to bring in a record $13.6 billion in the year to June 2012, thanks in part to favourable spring growing conditions.

In general, MAF expects overall pastoral production for the 2011/12 season to be above average.

Prices for pastoral agriculture and seafood have generally remained at historically high levels during the past half-year, despite the deteriorating global economy and high exchange rates, MAF says.

Strong demand from China and the rest of Asia are common themes running through many of the commodities stories for 2011.

For forestry, an industry that was once in decline, a turnaround in prices has been a godsend.

"The good news is that we are now in pretty positive territory," NZ Forest Owners Association president Peter Berg told APNZ.

"Over the last couple of years deforestation has essentially stopped and new plantings have started to build again," he says.

"We are cycling back in the right direction, and I think that is partly a reflection of the markets being good and partly due to the emissions trading scheme (ETS)."

Forestry was first sector to enter the ETS, in 2008, because of the importance of forestry to New Zealand's ability to meet its international obligations for greenhouse gas emissions.

Log prices surged to in April/May but have tailed off since then, reflecting tough conditions in the domestic and offshore construction industry.

According to NZX Agrifax, logs are trading at $77 a tonne, still over their long term average, but down from $97 a tonne in April this year.

Statistics NZ data for the year to March 2011 showed that new area planted in forest was 7100 hectares, a 4200-hectare improvement from the previous year.

It's not all good news for forestry, because timber exports dropped away sharply in the September quarter, thanks to weak demand in the US and domestic housing markets.

Wool has gone from being little more than a cost recovery nuisance for farmers to a genuine earner, which has helped change the mindset for this once highly-valued commodity.

Prices for 35 micron fleece have gone up by 29.7 per cent over the last year, despite ructions on world markets and the strong New Zealand dollar. Since 2009, wool prices have doubled.

Cotton prices have taken a hammering over the last six months and the fear is that this trend might spread to wool. So far, prices have held firm.

Wool export revenue is expected to increase by 19 per cent to $848 million in the year ended in June 30, 2012, due to higher prices, according to MAF.

Then there is lamb. The lamb schedule price for the year to September 2011 was the highest in inflation-adjusted terms since 1977, due to reduced supply on lobal markets.

Lamb hit $8kg a few weeks back, up from $6.10 a kg this time last year and $3 a kg in 2007. New Zealand export lamb export revenue is expected to increase by 9 per cent to $2.76b in the year to June 2012. The lamb crop for spring 2011 is expected to be up by 7 per cent on the same on last year's.

Beef prices are up 16 per cent on last year. This market, which is sensitive to the US beef market, has been hard hit by the strong New Zealand dollar against the US dollar. NZ beef production is expected to increase 2.4 per cent in the year to June 2012.

Elsewhere in the primary sector, the MAF report shows "wild capture" fisheries production was up 2.4 per cent to 442,000 tonnes in the year to September 30. Production was up due to increases in the total allowable catch (TACC) for hoki. MAF says the increase in the hoki TACC will continue to push up wild fisheries production in the medium term.

But it's not all rosy on the New Zealand commodities scene. The kiwifruit industry has been hit hard by the virulent Psa infection which is having a severe impact on the premium "gold" variety, according to MAF analysts.

Loss of vines since November 2010 could take production of gold kiwifruit from 30 million trays in 2011 to 20 or even 10 million trays in the 2012 season.

However, most of the main New Zealand commodities had a good year.

Take pelts and hides, for example.

This market suffered during the 2008 global financial crisis, because demand from the car and luxury goods markets dropped like a stone. Since then, prices have tripled.

- APNZ

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