Archive | Commodities

Dairy farmers expecting just 1% rise in gross revenue

Published 19 August 2006

Dairy farmers are expecting only a minimal rise in gross farm revenue for the coming season, the Ministry of Agriculture & Forestry’s 2006 farm monitoring report into the status of the sector shows.

The report said farmers were budgeting on an overall 3% rise in milk solid production & an 8% increase in cattle sale returns for the year, but expected a lower payout to offset that. This translated to a rise of just 1% in their gross farm revenue.

MAF’s policy group monitors the production & financial status of farms annually in terms of their cash income & expenditure.  Trends, issues & sector concerns are also monitored.

The reports are based on model farms designed to best typify average farming operations within specific regions. Information for each model is drawn from real farmers & a wide cross-section of agribusiness, and prices & projections are based on their opinion, not MAF’s.

The report said production jumped in the last year but the gains made didn’t translate into farmer profit. Milk solid production rose 4% but didn’t lead to an increase in profitability because the payout was lower & expenses higher.

The report’s co-ordinator, MAF Policy’s manager of North Island regions, Phil Journeaux, said the lift in milk solids production resulted in a 10% increase in gross farm revenue, despite the lower payout.  Farm working expenses, however, rose by 14%, with significant increases in wages, feed, fertiliser, repairs & maintenance. Fuel costs rose by 18% and rates jumped 14.5%.

“The average property has recorded a disposable loss, offset by new borrowing & off-farm income. Of the 100 farms monitored, 71 recorded a disposable loss, up from 59 the previous year,” Mr Journeaux said.

The report concluded that most farms are once again budgeting for a disposable deficit from their operations, offset by other cash sources: “This is a direct reflection of the difficulty of farming with a $4 payout with current on-farm cost structures & ever-increasing prices of inputs.

“Overall, though, farmers remain confident the industry is heading in the right direction, despite the current payout level.”

Website: MAF dairy farm monitoring report


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Attribution: Company statement, story written by Bob Dey for this website.

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Confidence up but MAF predicts only modest growth

Published 2 August 2006

The falling $NZ has brought a surge in confidence, but the Ministry of Agriculture & Forestry is predicting only modest growth from the primary sector over coming months.

MAF released its latest forecasts on Tuesday for the dairy, meat & wool, forestry, kiwifruit, apples and wine industries for 2006-10 – the Sonzaf  (Situation & outlook for NZ agriculture & forestry) report.

It has forecast that export revenues in the sector will grow from $15.7 billion in the March 2006 year to $17.9 billion in the March 2007 year, and to $20.5 billion by 2010.

However, the ministry’s monitoring & evaluation manager, Peter Gardiner, warned that increasing costs would affect profitability. Energy costs, which account for around 20% of farm production costs, were likely to remain high.

The report showed:

international meat & dairy prices were retreating and expected to reach a low point in 2007
the prices of horticultural & forestry products were improving, but these industries were having difficulty attracting workers and labour costs were rising.

Highlights of the report:

Dairy, MAF expects the dairy industry to continue to expand over the next 5 years, but more slowly than in the past few years. Production of milk solids in the May 2006 year is estimated to be up 4% on the previous year at 1260 million kg. Weaker international dairy prices are likely to be reflected in relatively static milk payouts over the next 2 years. MAF expects milk solids production to increase to 1358 million kg by 2010. A moderate expansion of the dairy herd by 80,000 cows between 2006-10 will drive this increase in production
Lamb, international lamb & mutton prices in New Zealand’s key markets are expected to fall during 2006.  A recovery in prices is forecast from mid-2007
Wool, MAF expects international wool prices to continue their long-run decline. The weaker $NZ is supporting improved wool returns, which are forecast to remain at these levels through 2007. Wool production will fall in line with the decline in sheep numbers (from 39.3 million in 2005 to 38.5 million in 2010)
Beef, international beef prices will remain relatively high in the short term because of the supply of beef on international markets. MAF forecasts beef cattle numbers to decline by 100,000 between 2006-10. However, production of beef for export is expected to remain relatively static at around 440,000 tonnes from 2007-10, reflecting the dairy industry’s increasing contribution to beef production
Venison, European venison prices are expected to remain relatively low through 2006 as large volumes of New Zealand venison continue to enter Europe. However, a falling $NZ should translate this into a weak recovery. Production of venison for the June 2007 year is expected to be lower than in the previous 2 years as the cycle of destocking runs its course and fewer animals are slaughtered. Export volumes are forecast to peak in the June 2006 quarter then decline
Horticulture, total apple production is expected to fall by 15% in the March 2007 year compared with 2006 as a result of tree removals and lower yields due to climatic conditions. International kiwifruit prices are expected to rise slowly as the already high-quality standards are further enhanced and exports of the higher-priced gold variety increase. Wine production will be 20% higher in the March 2007 year compared with 2006. After 2007, production is expected to increase 10%/year until March 2010, as new plantings mature
Forestry, new forestry planting during autumn & winter of 2005 is provisionally estimated at 6000ha – significantly down on the 45,000ha/year average from 1990-2004. Average export prices are expected to fall 6% between 2005-10. MAF expects a recovery in forestry production in 2007, reflecting increased harvesting from a maturing forest. Export volumes are anticipated to rise 10%/year to 2010 – the increase coming mainly from exports of logs. Export values are expected to rise 44% from $3.1 billion to $4.6 billion over the same period.

Website: Full Sonzaf report

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Attribution: MAF report, story written by Bob Dey for this website.

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Commodities index up 22% on year ago and peaking

ANZ Bank’s world commodity price index rose 0.3% in September to place it 22.2% above the level a year ago, but the bank’s economists said today the strong recovery of the past 2 years may be coming to an end.

They said concerns about the US current account could keep the $NZ up for a while, but it should start to fall through 2005, at least partly offsetting a fall in commodity prices.

Commodity prices hit a low point in July 2002 and the index is now 34.6% above that level.

“The recovery in world commodity prices has been characterised by prices for dairy, beef & lamb surging to record levels. A sharp recovery in dairy prices from a low in July 2002 has taken the dairy index to its highest level since April 1996. Complementing this, export prices for beef & lamb are at record levels for the 18-year history of the index,” the ANZ economists said.

“Moderating global growth, waning supply-side influences & the removal of BSE-related trade restrictions are expected to see commodity prices soften over 2005. This would be consistent with the cycle nearing a high as key commodities breach record levels.

“The extent to which such an outcome translates to export returns could ultimately depend on the fortunes of the $NZ. While commodity prices are themselves a key driver of the currency, there is the prospect that US current account concerns could see a further bout of $US weakness translate to a rising $NZ.

“But as 2005 progresses the $NZ is expected to give ground against all the major currencies as key pillars of support associated with commodity prices, interest rate differentials and New Zealand’s growth prospects dissipate. This in turn should provide some offset to lower world commodity prices over the course of 2005.”

Website: ANZ Bank

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