For the current season, Fonterra forecasts a $9.00/kg midpoint – above breakeven for most dairy farmers - while NZX futures market pricing points to a $9.50/kg milk price.
The Reserve Bank said sheep farmers were facing challenging market conditions because of low sheep meat prices.
The bank also said farm operating expenses and debt-servicing costs have increased significantly over recent years and that farmers have adapted by cutting back their use of some inputs like feed and fertiliser.
“Many farmers have also been able to slow the pace at which they are paying down loan principal, having reduced their debts over previous years,” the bank said.
As a result, the non-performing share of agriculture lending remained low.
“The recent increase in commodity prices and the lower outlook for interest rates should help farmers over the coming year.
“However, a more severe global economic downturn, particularly in China, remains a risk for farmers.”
Recent changes in Government policy regarding emissions pricing will delay when the agriculture sector begins paying for its emissions.
This additional time may provide the sector with an opportunity to reduce greenhouse gas emissions, for example through research into technological solutions.
However, international pressure to price emissions remained significant.
China is New Zealand’s biggest destination for most of its primary exports.
Meat Industry Association chief executive Sirma Karapeeva.
While dairy – New Zealand’s biggest export commodity – has seen better conditions in recent months, the same can not be said for the meat trade – the second biggest.
Last week, the Meat Industry Association (MIA) said relatively subdued export returns for New Zealand red meat in September reflected the complex dynamics of the global trade.
The sector exported products worth $564 million during the month, down 8% from last September, with lower production levels impacting volume.
The US was the largest export market at $143m, down 5%, followed by China which dropped 41% year-on-year to $106m.
MIA chief executive Sirma Karapeeva said there was ongoing demand for New Zealand red meat but lower production levels affected export returns.
“The most noticeable trend for the month, and the third quarter, was the drop in the volume of exports compared to last year.
“This appears to be largely due to a drop in production over recent months. There has been less meat produced and available for export.
“In general, there is still demand, except perhaps in China, but supplies have been constrained in recent months,” she said.
Overall, sheepmeat exports were down 16% by volume to 16,238 tonnes for September and by 14% for the quarter to 58,685 tonnes.
Export values fell by 7%t in September, to $183m, and by 10% for the quarter to $604m, MIA said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
