Increased feed prices push up farm expenses

ASB's senior rural economist Nathan Penny. Photo / Supplied

Rising feed prices are driving farm expense inflation, ASB's Commodities Weekly says.

In annual change terms, farm input prices rose 3% in June, and rising feed prices were driving much of the overall rise.

Over the same period, feed prices jumped 5.8%, which was a marked turnaround after feed prices were largely unchanged in the year to June 2017, senior rural economist Nathan Penny said.

Fuel prices had also climbed rapidly over the past year. Since June 2017, prices had lifted 20%, and that lift had coincided with rising global oil prices, the weaker New Zealand dollar and rising fuel taxes.

The bank was expecting input prices to continue rising at a similar pace over the year ahead, Mr Penny said.

Dry weather offshore was likely to keep the price of imported feed, such as palm kernel, high. Prices and incomes were also relatively healthy across most sectors and, as a result, both livestock and feed prices were likely to tick higher.

The one exception was likely to be wages. Wage pressures were likely to be relatively muted this year but, at the same time, finding good farm workers would remain a challenge to the sector, he said.

ASB's latest Farmshed Economics report said lamb prices continued to "head for the sky." Over August, the per kilogram price lifted a further 35c to $8.35 and AgriHQ even hinted prices could hit $9 by October.

There were some growing risks; in particular, the chance of a full-blown US-China trade war was increasing.

In a trade war scenario, global economic growth could slow and reduce global lamb demand. The other risk was that consumer price resistance could kick in at those record price levels.

Beef prices were holding up at solid levels, although that might not last as market fundamentals had taken "a turn for the worse".