Commodity prices up but so is $NZ

May 5, 2009

The good news is that the ANZ Commodity Price Index showed an increase for the second month in the row.

Unfortunately that 2.5% % increase was counteracted by an increase in the value of our currency which meant commodity prices fell 2.8% in New Zealand dollar terms between March and April.

The price of eight commodities rose last month, two were flat, and apples, seafood and logs fell.

The largest rise was for aluminium, up 6.6 percent for the month, followed by lamb, up 6.4 percent to a record high.

Beef prices rose 3.2 percent, dairy was up 3.1 percent, skin prices rose 2.3 percent, venison was up 1.6 percent and the price of wool rose 1.3 percent.

That’s encouraging for sheep and beef farmers, especially those in drought-hit areas who’re being forced to sell stock who might get some small comfort that they’re selling on a strong market.

The increase in skins and wool, though small, is a welcome change from what looked like a permanent downward trend.


Rural Confidence Down but Business Intentions Robust

May 5, 2009

Farmers’ concerns about  world commodity prices contributed to an increase in those expecting the agricultural economy to worsen in the next 12 months.

The latest quarterly Rabobank Rural Confidence Survey shows 33% of farmers expect the agricultural economy to deteriorate in the next year, up from 29% who had a gloomy outlook in November last year.

The number of farmers expecting stability dropped from 44% to 38% but there was a slight increase in those expecting an improvement, 27% compared with 26% in the previous survey.

Sheep and Beef farmers’ outlook had improved and dairy confidence had stabilised.

Rabobank general manager Rural New Zealand Ben Russell said . . . “Although dairy farmer confidence remains at subdued levels on a net basis, the over-riding message coming from dairy producers appears to be one of anticipated volatility.”

The survey was taken before last week’s announcement from Fonterra of a 10 cent increase in the forecast payout.

The last two on-line auctions for Fonterra’s globalDairyTrade have shown a slight improvement in price, the next one is scheduled for tonight.

Sheep and beef farmers were more confident with 74% expecting conditions to improve or stay the same compared with 70% in the previous survey and only 23% expecting a deterioration in the agricultural economy.

The improvement is attributed to a lower New Zealand dollar and decreased supply here and in competing markets

Uncertainty about commodity prices was the factor cited most by those who expect conditions to deteriorate and improve.

“It appears to be a case of a glass half full or glass half empty whent it comes to commodity prices, Mr Russell said. “Of those farmers expecting conditions to worsen, 47% nominated falling commodity prices as a concern. But for those anticipating the agricultural economy to improve, 44% cited rising commodity prices as a reason.”

Farmers were more optimistic about their own businesses than about the rural economy in general.

Of those surveyed, 34% expected their farm businesses to perform better in the next 12 months, while just 23% expected their own business performance to worsen.

The difference was most marked in sheep and beef and mixed farmers with 23% expecting the rural economy to worsen but only eight percent predicting things to get worse on their own farms.

Farmers’ investment intentions remained relatively robust, the survey showed, with more than half of those surveyed, (57%) indicating they would maintain the same level of investment in their farm enterprise, while 22% expected to increase investment.

dairy-1

It may be crystal ball gazing but confidence is important because farmers who aren’t confident about their own businesses stop spending which impacts on the people who work for, contract to, supply and service them.


On-farm inflation 9.7%

July 15, 2008

A 9.7% increase in costs for sheep and beef farmers in the year to March 2008 is the highest rate of on-farm inflation since 1986-87 when input prices rose 13.2%.

The previous year the price of inputs increased 2.7%.

Major increases were:

Fertiliser, lime & seeds:         30%

Fuel:                                      23.5%

Feed & grazing:                     13.7%

Interest:                                 9.0%

Electricity                               7.2%

Local Govt. rates                    6.6%

Although the high dollar reduced the price of imported goods, fertilsier, lime and seed prices still increased by 30%. The price of fertiliser increased from $260 to $480, another 60%, between March and June, June but that is not included in these figures.  

Local Government rates increased 6.6 per cent. This was the second largest increase in 17 years and in the last five years the overall increase was 33 per cent, an average of 6.6 per cent per year. The overall cumulative increase over 5 years to March 2008 was 22.7 per cent, while over 10 years the increase was 37.0 per cent.

In comparison the CPI rate of increase over 5 years was 14.0 per cent, well below the 22.7 per cent for sheep and beef farm input prices

If interest is excluded, the underlying rate of on-farm inflation in 2007-08 was up 8.3 per cent.

Meat & Wool Economic Service figures for the annual on farm inflation percentage change in the past 10 years:

including interest        (underlying % change) excluding interest

1998 -99         -2.0%                                          0.9%

1999-00                 2.8                                                             1.4

2000-01                 5.2                                                             6.0

2001-02                 1.7                                                             2.8

2002-03                 3.6                                                             3.4

2003-04                -0.2                                                             0.0

2004-05                 4.1                                                             3.7

2005-06                 4.8                                                             5.2

2006-07                 2.7                                                             2.7

2007-08                 9.7                                                             9.8

 


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