Firm prices sector-wide a good sign

Sheep meat prices continue to rise; sheep in Waitahuna last month steam in the chill of an autumn morning.

Strength in primary prices in the ag sector - across dairy, beef and sheep meat - bode well for the year ahead for the farming community, economists say.

While some farmers may have to address debt accumulated during the past two years, the extra cash could be an overdue boost to improve farm economics, the economists have said.

BNZ senior economist Doug Steel said the price strength was relatively broad-based across the primary industries.

"Beef, dairy, forestry, horticulture, lamb and venison are all enjoying prices that are above their respective five-year averages, with most materially so,'' he said.

The price path was different across products. Dairy prices had lifted strongly during the past year from very low levels, while horticulture had simply remained strong.

"It's unusual to see so many sectors with firm prices at the same time,'' Mr Steel said.
Any farm debt repayment would temper the boost to economic growth from the higher primary prices, but would help strengthen balance sheets in the process.

"One way or another, the upswing in primary product prices is welcome, turning from a headwind to a tailwind for the economy as a whole,'' Mr Steel said.

ASB chief economist Nick Tuffley said the overall price strengths boded well for the upcoming season. The dairy sector "has its mojo back'', he said.

"Fonterra's 2017-18 opening milk price of $6.50 per kg all but confirms that this is the case. Indeed, at this level, a clear majority of farmers are setting up for a season in the black,'' Mr Tuffley said.

He said similarly, the sheep meat sector "has a skip in its step'' after hitting the $6 per kg mark last month. Lamb prices had since lifted further.

"Moreover, prices over May were their second-highest on record for the month, behind only May 2011,'' he said.

Beef prices were also "very healthy'' and remained on track to surpass $6 per kg in early spring.

"While `merely' tracking sideways over the last month, prices have sat at record highs over the May month, as they did over April,'' Mr Tuffley said.

Mr Steel said prices sitting above their five-year average at present was a "positive sign'' for farmers' incomes and might prompt a lift in farm spending, albeit probably tempered by some debt repayment.

"To the extent that farmers spend the additional cash, it will be a boost for economic activity.

"But there are also debt repayments and saving to consider,'' Mr Steel cautioned.

The prices boded well for a "buoyant atmosphere'' at this year's 49th National Fieldays at Mystery Creek in mid-June. Given the improving sentiment, Mr Steel said the Fieldays attendance could threaten last year's total of more than 130,000 people, or even 2008's record of just under 132,000.

simon.hartley@odt.co.nz