New Zealand's agricultural sector is poised for a third consecutive year of broad-based profitability, although negative risks are mounting, a new industry report says.
Rabobank's annual Agribusiness Outlook said favourable production conditions and strong commodity pricing were likely to continue throughout 2019.
Those factors, combined with an expected weakening of the New Zealand dollar, would set up a further profitable year for farmers across the country's major agricultural sectors.
However negative risks, particularly those relating to New Zealand's major offshore markets, were mounting.
Those risks had the potential to "derail" the industry from its unusually long winning streak.
A slowdown in the Chinese economy and trade disputes between key trading partners shaped as the most significant threats to New Zealand agriculture in the year ahead.
Rabobank New Zealand country banking general manager Hayley Gourley said the weather had been highly favourable in recent months and the outlook for the foreseeable future looked benign.
Listen to The Country's interview with Hayley Gourley below:
Commodity prices for New Zealand's main agricultural products were also strong at the moment and, while prices for some commodities were set to soften modestly in 2019, others should strengthen.
The sector's sensible use of profits in recent seasons was a further factor which had positioned the industry for a strong showing in 2019, Gourley said.
The report said the stagnant land market was one unusual aspect of the sector's recent run of strong seasons.
Lead author, RaboResearch general manager Tim Hunt, said lower economic growth in China was a particular concern for New Zealand agriculture, given it was New Zealand's largest trading partner for agricultural products.
Meanwhile, the United Kingdom and the EU had to sort out Brexit. And with a "no deal" departure a distinct possibility, there was a real risk of a heavy impact for two of New Zealand's key markets.
The possibility of an escalation in the US-China trade dispute was a further threat, as were the flow-on effects on consumption of a possible US recession and a crashing Australian house market.
Domestically, the bacterial cattle disease Mycoplasma bovis remained a key risk, but signs were positive that the battle against the disease was being won, Hunt said.
While an agricultural industry downturn seemed unlikely in the short term, the decisions made over the course of the year by the Government, farmers and agribusiness corporates would have a significant effect on how well the sector rides out the next industry downturn when it did arrive, the report said.
The Government would draft legislation on water quality, climate change, carbon farming and biodiversity this year, while the Dairy Industry Restructuring Act was being revised and Fonterra would complete its asset sale plan.
"The decisions made in each of these areas will play significant roles in shaping the future of the industry, and, with everything that is going on right now, being prepared for a tougher operating environment probably isn't a bad idea," Hunt said.
The report said the likely record 2018-19 dairy production would be hard to replicate in 2019-20, as land use competition and environmental constraints would be strong barriers to growth.
Rabobank's forecast for 2018-19 stood at $6.25 kg/ms.
Fonterra's latest global dairy update showed New Zealand milk production increased 4 per cent in December compared with the corresponding month the previous year, while production for the 12 months to December was 2 per cent higher than in the previous year.
The bank expected farmgate beef prices to hold above their long-term average despite some softening from increasing global supplies and downward price pressures in the US market.
Prices for lamb and mutton were expected to remain at elevated levels on the back of solid demand growth in off-shore markets and limited supply growth at home and in Australia.
It was forecasting moderate growth for New Zealand wine, but Brexit shortages would limit the speed.
Horticulture exports would continue to grow, although labour shortages would act as a restraint.