Agribusiness: ASB report predicts a testing time ahead

ASB's rural quarterly report says weak Chinese demand is pushing global commodity prices down further. Photo / Christine Cornege

By Monique Steele of RNZ

A challenging year ahead for New Zealand agri-business is predicted in a new rural banking report.

ASB’s rural quarterly report, Sleepless in Shanghai, said weak Chinese demand was pushing global commodity prices down further - especially for dairy, red meat and forestry.

The report said forestry prices were in a rut, and global dairy prices were down more than 40 per cent from peaks in early 2022.

ASB was anticipating a reduction in dairy and meat supply, as many farmers fell below the break-even point, ASB economist Nat Keall said.

“It’s going to be a pretty challenging period,” Keall said.

“A lot of that has to do with what’s happening in China, it’s obviously such a major trading partner for us.”

“China sneezes and everybody else catches a cold.

“What we’ve seen is that commodity prices lately have continued to ease just as the economy there has weakened and demand’s weakened.

“As prices fall, fewer farmers produce and therefore you get a bit of tightening of supply and prices start to move up again.”

Keall said interest rates were expected to remain high for the next year too - with the debt servicing burden at its highest in years.

ASB said it would support its agri-business customers, and urged them to contact their banker if concerned.

“We are in a cycle and things will get better, but it’s really hard to pick exactly when the turning point is going to come,” Keall said.

It is increasingly likely that ASB will adjust its forecast for the next milking season from $7 per kilogram of milk solids, made at the start of the season, down to $6.60 per kilogram of milk solids.

This is slightly below dairy giant Fonterra’s revised forecast, with a midpoint of $6.75 per kilogram of milk solids.

- RNZ