Agribusiness Monthly November 2015 New Zealand
Commodity outlook Sector Dairy Driver Milk intake remains lower for the season to date compared to last year, down around 3%, as at October 2015. Beef Farmgate prices have come under pressure this past month, as high domestic and imported supplies in the US underpin weak buying. Sheepmeat Wool Wine Fertiliser FX Farmgate prices generally trended lower throughout October, but have rebounded slightly as at the middle of November. We are seeing a close relationship between price volatility and swings in the NZD/USD exchange rate. In the first few weeks of November crossbred wool prices have improved from the lows seen in October. New Zealand wine exports increased by 6.4% in volume and 10.5% in value in the 12 months to September 2015. Despite increased urea prices, markets are expected to remain weak as a result of seasonally decelerating demand in the US and Europe. After keeping interest rates on hold at 2.75% in October, there is increasing speculation that the RBNZ is likely to ease rates in the coming months. Oil Oil stocks have reportedly reached historic highs in key markets including China and the US. 2
Climate International guidance suggests El Niño is certain (100% chance) to continue now and into the new year (November 2015 to January 2016), with NIWA expecting conditions to intensify and peak in the coming months. Soil moisture anomaly (mm), 17 November 2015 Rainfall is likely to be in the normal range for the west of the North Island and the top of the South Island, while the west coast of the South Island has a chance of above normal rainfall from now and into the New Year. The remainder of the country, however, has a chance of below normal rainfall levels between November and January 2016. Soil moisture levels are likely to continue to be below normal for the Northern North Island region, as well as the east coast of the South Island. The west coast in the South Island has a chance of above average soil moisture levels, but the remainder of New Zealand is likely to have near normal or below normal soil moisture levels. Southern Oscillation Index, November 2015 Source: NIWA, Rabobank, 2015 3
USD/tonne FOB Dairy World dairy prices Further culling of low performing dairy cows took place in September, as farmers reassessed herd sizes and budgets. The total New Zealand dairy herd is smaller this season, with total cow slaughter 26% higher than last year around 238,000 more cows for the 12 month period to September 2015. Drier weather is beginning to affect key dairying regions. The Waikato and Canterbury regions in particular are feeling the effects of belowaverage soil moisture. 5,500 4,500 3,500 2,500 Milk intake remains lower for the season to date compared to last year, down around 3%, as at October 2015. This is in line with Rabobank s production forecast for the remainder of the season (7-10% below last season s total milk supply). Global dairy commodity markets remain weak, as shown by recent GDT auction results. Rabobank believes it will be a few months yet before the global market rebalances. 1,500 Source: USDA, Rabobank, 2015 Butter SMP WMP Cheese Production growth in key exporting regions: What to watch: Latest month Last 3 months Chinese milk powder import volumes returned to growth in recent months. China is likely still carrying some inventories and will need to work through these. The EU has seen positive growth in milk production in the six months since the removal of quotas. Markets are expecting the rate of growth to slow in the coming months. EU 2.2% (September) 2.3% US 0.4% (September) 0.8% Australia 0.8% (September) 3.0% NZ -3% (October estimate) -3% (season to date) 4
thousand head NZc/kg cwt Beef North Island bull price, Jan 2014- Nov 2015 Farmgate prices have come under pressure this past month, as high domestic and imported supplies in the US underpin weak buying. As at the middle of November, the North Island bull price averaged NZD 5.45 kg/cwt, slightly lower compared with last year. At the conclusion of the processing season (Oct Sep), total cattle slaughter hit 2.64 million head 13% higher YOY and 18% above the five year average. Overall exports in September jumped 32% YOY, to 27,676 tonnes swt, with large increases across most key markets. Shipments to the US (10,658 tonnes swt) increased by 21%, while volumes to China (4,402 tonnes swt) surged 106% YOY. Reflecting the current difficult trading environment in the US, imported 90CL prices (US 189.5 cents/lb) at the middle of November are the lowest since September 2013. NZ cow slaughter processing season 1,200 1,100 1,000 900 800 700 600 640 620 600 580 560 540 520 500 480 460 440 420 400 380 360 340 Source: NZX Agrifax, NZ Farmer, Rabobank, 2015 What to watch: NI Bull 300kg 2014 NI Bull 300kg 2015 After numerous years of strong growth, dairy cattle numbers for the year to June 2015 declined for the first time in ten years. This fall was underpinned by low dairy prices and will ensure much tighter beef supplies in the 2015/16 season. Source: NZ Meat Board, 2015 5
thousand head NZD c/kg cwt Sheepmeat South Island lamb price, Jan 2014-Nov 2015 Farmgate prices generally trended lower throughout October, but have rebounded slightly to sit at NZD 5.85/kg cwt as at the middle of November 5% lower YOY. 650 600 At the conclusion of the processing season, lamb slaughter volumes increased 3% YOY, reaching 21 million head, while mutton slaughter declined 4% over the same time, to 4 million head. Challenging seasonal conditions across most of NZ underpinned the increase, with the highest lamb volumes processed since 2008/09. 550 500 Total sheepmeat exports in September increased 9% YOY, to 22,834 tonnes swt, although average export returns declined slightly over the same time, to average NZD 7.88 kg/fob. Average returns in China (NZD 4.68 kg/fob) declined 9% YOY, although the EU (NZD 10.68 kg/fob) increased 3% over the same period. 450 400 South Island 17.5kg YX 2014 South Island 17.5kg YX 2015 NZ lamb slaughter processing season 23,000 22,500 22,000 21,500 21,000 20,500 20,000 19,500 19,000 18,500 18,000 Source: NZX Agrifax, NZ Farmer, Rabobank, 2015 What to watch: Demand factors are reportedly weak, particularly for frozen product. One potential positive for exporters is a likely further easing in the NZD/USD given the potential for the US Federal Reserve to lift interest rates in December. Source: NZ Meat Board, Rabobank, 2015 6
tonnes NZD/tonne NZD c/kg Wool NZ coarse crossbred wool prices The price of coarse crossbred wool continued to contract throughout the latter stages of October, to a low of NZc 574/kg on October 30. Prices have rebounded in the first half of November to near the NZc 600/kg mark. With some early volumes coming through the sales, the first lambswool indicator has been released at NZc 750/kg which is 6.1%, or 43 cents, higher than last year s close. Once again we are seeing a close relationship between price volatility and swings in the NZD/USD exchange rate. Clearance rates in week 17 were at a two year low of 69%, but rebounded to around 90% in weeks 18 and 19 and a season high of 99% in week 20. These clearance rates were aided by a weakening NZD/USD, which has fallen by 3.49 cents (5%) in the month to November 17. 650 600 550 500 450 400 New Zealand exports have continued their strength in the 2015/16 season, with exports for the month of September up 6% YOY. In value terms, aided by the underlying weakness in the NZD, export earnings were also up 14.5%. Coarse Crossbred 2014 Coarse Crossbred 2015 Source: NZWSI, Rabobank, 2015 NZ wool exports 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 What to watch: The Commerce Commission has approved Cavalier s application to acquire NZWSI s wool scouring business. Citing that despite creating substantially less competition, the rationalisation of the industry should result in lower administration and production costs as well as freeing up a number of industrial sites in the near future. There is an expected appeal from Godfrey Hirst. Tonnes clean 14/15 Tonnes clean 15/16 Price per tonne 14/15 Price per tonne 15/16 Source: NZ Beef & Lamb, Rabobank, 2015 7
volume change Volume (million HL) Net balance (million HL) Wine Global wine supply/demand, 2005-2015(f) New Zealand wine exports increased by 6.4% in volume and 10.5% in value in the 12 months to September 2015. Export shipments in the month of September fell by 5.0% in volume but increased by 12.2% in value versus the same month last year, illustrating the support that the short 2015 harvest and lower NZD is providing to pricing. 300 290 280 270 260 250 60 50 40 30 Average prices for New Zealand wines exported in bottled format jumped to NZD 9.22 per litre in the month of September, the highest level recorded since January 2012. Average prices to the UK, US and Australia markets in particular have rebounded strongly since harvest back in March/April. 240 230 220 210 200 20 10 0 New Zealand wine exports, MAT September 2015 20% 18% 16% Global Supply Industrial Use (RHS) Source: OIV, Rabobank, 2015 Global Balance (RHS) 14% 12% What to watch: 10% 8% 6% 8% 9% 8% 6% Early indications suggest that global wine production will see a mild increase in 2015. Production increases in places such as Chile and Italy appear to be enough to overcome projected declines in Spain, the US and 4% Argentina. Even still, the level of increase does not 2% 0% 0% UK Australia USA Canada Total appear to be placing any significant downward pressure on bulk wine prices at the present moment. Source: NZ Winegrowers, Rabobank, 2015 8
USD/tonne Fertiliser Global fertiliser prices Despite a lift in global urea prices, markets are expected to remain weak as demand in Europe and the United States seasonally decelerates. 550 500 Indian import demand for phosphates remains weak. A deficient monsoon and continued depreciation of the rupee have contributed to an increase in carryover stocks 450 400 Global potash prices are under pressure on limited demand. There is potential for further price falls in the coming months on weak fundamentals. 350 300 What to watch: 250 Potash market attention turns towards the tender season across South-East Asia. Confirmed deals are putting more pressure on Chinese contract talks. Urea DAP Source: Bloomberg, Rabobank, 2015 9
Annual change (% QoQ) NZD / USD FX NZD/USD: 12-month price movement The Reserve Bank of New Zealand (RBNZ) elected to hold the official cash rate at 2.75% at its meeting on 29 October. The NZ dollar has given up ground over the past month, with commodity prices coming under renewed pressure, while US jobs growth bounced back in November to renew speculation of a December rate rise. The RBNZ has reiterated its view that further easing of the official cash rate seems likely. Underlying consumer price inflation fell again in Q3-2015, below the bottom of the RBNZ s target range, with little pressure expected from still subdued wages growth. NZ consumer prices and wages growth, 2005-15 0.85 0.80 0.75 0.70 0.65 0.60 0.55 6 5 Source: RBNZ, Rabobank, 2015 4 3 2 1 0 What to watch: We forecast NZD/USD falling towards 0.61 in a 12-month view. Weak commodity prices, ongoing signs of slower economic growth in China, and the easing bias from the RBNZ are expected to weigh on the NZ dollar against a backdrop of an improving US economy and stronger US dollar. Headline CPI CPI excl. 'volatile items' Labour cost index Source: Statistics NZ, Rabobank, 2015 10
USD/BBL Index Oil & Freight Oil stocks have reportedly reached historic highs in key markets, including China and the US, amid an expected pickup in supply from the Middle East. This has been largely due to the lifting of sanctions on Iran. Consequently, Rabobank remains bearish on oil prices in the short term. The Baltic Dry Index is at its lowest November level of all time, and continues to be a strong indicator of where the global economy stands at this point. Brent Oil Baltic Dry Index 100 1500 90 1250 80 70 1000 60 50 750 40 500 Source: Bloomberg, Rabobank, 2015 11
Agri price dashboard As of 19/11/2015 Unit MOM Current Last month Last year Grains & oilseeds CBOT wheat USc/bushel 483 491 538 CBOT soybeans USc/bushel 858 896 1,005 CBOT corn USc/bushel 362 377 363 Australian ASX EC Wheat AUD/tonne 281 282 292 Australian Canola AUD/tonne 535 572 473 Beef markets Eastern Young Cattle Indicator AUc/kg cwt 594 518 328 Feeder Steer AUc/kg lwt 320 290 188 North Island Bull 300kg NZc/kg cwt 545 580 550 South Island Bull 300kg NZc/kg cwt 510 600 518 Sheepmeat markets Eastern States Trade Lamb Indicator AUc/kg cwt 502 469 458 North Island Lamb 17.5kg YX NZc/kg cwt 605 630 633 South Island Lamb 17.5kg YX NZc/kg cwt 585 620 606 Venison markets North Island Stag NZc/kg cwt 776 845 715 South Island Stag NZc/kg cwt 797 875 753 Dairy Markets Butter USD/tonne FOB 2,850 3,175 2,900 Skim Milk Powder USD/tonne FOB 2,500 2,163 2,450 Whole Milk Powder USD/tonne FOB 2,050 2,763 2,550 Cheddar USD/tonne FOB 3,150 3,200 3,850 12
Agri price dashboard As of 19/11/2015 Unit MOM Current Last month Last year Cotton markets Cotlook A Index USc/lb 69 70 67 ICE No.2 NY Futures (nearby contract) USc/lb 61.52 63.78 59.11 Sugar markets ICE Sugar No.11 USc/lb 14.5 14.1 15.9 ICE Sugar No.11 (AUD) AUD/tonne 449 427 406 Wool markets Australian Eastern Market Indicator AUc/kg 1,252 1,169 1,048 NZ Coarse Crossbred Indicator NZc/kg 598 599 526 NZ Fine Crossbred indicator NZc/kg 642 632 549 Fertiliser Urea USD/tonne FOB 270 250 375 DAP USD/tonne FOB 425 450 460 Potash USD/tonne FOB 292 305 287 Other Baltic Dry Index 1000=1985 519 762 1,306 Brent Crude Oil USD/bbl 44 49 79 Economics/currency AUD vs. USD 0.711 0.726 0.862 NZD vs. USD 0.647 0.675 0.785 RBA Official Cash Rate % 2.00 2.00 2.50 NZRB Official Cash Rate % 2.75 2.75 3.50 13
Food & Agribusiness Research and Advisory Marc Soccio Senior Analyst Wine, Horticulture & Rural Economics +61 3 9940 8437 Marc.Soccio@rabobank.com Michael Harvey Senior Analyst - Dairy & Farm Inputs +61 3 9940 8407 Michael.Harvey@rabobank.com Graydon Chong Senior Analyst - Grains & Oilseeds +61 2 8115 4091 Graydon.Chong@rabobank.com Angus Gidley-Baird Senior Analyst - Animal Proteins + 61 2 8115 4058 Angus.Gidley-Baird@rabobank.com Matthew Costello Analyst - Animal Proteins +61 2 8115 2233 Matthew.Costello@rabobank.com Georgia Twomey Commodity Analyst +61 2 8115 2446 Georgia.Twomey@rabobank.com Emma Higgins Research Analyst +64 3 961 2908 Emma.Higgins@rabobank.com Ben Larkin Agricultural Analyst +61 2 8115 2741 Ben.Larkin@rabobank.com Maddie Armstrong Business Co-ordinator +61 2 8115 4157 Maddie.Armstrong@rabobank.com Rabobank Australia Nearest branch call 1300 30 30 33 www.rabobank.com.au This document is issued by a Rabobank Group member. The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. This document is for information purposes only and is not, and should not be construed as, an offer or a commitment by any Rabobank Group member to enter into a transaction. This information is not professional advice and has not been prepared to be used as the basis for, and should not be used as the basis for, any financial or strategic decisions. This information is general in nature only and does not take into account an individual s personal circumstances. All opinions expressed in this document are subject to change without notice. No Rabobank Group member accepts any liability whatsoever for any direct, indirect, consequential or other loss or damage howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. This document may not be reproduced, distributed or published, in whole or in part, for any purpose, except with the prior written consent of a Rabobank Group member. By accepting this document you agree to be bound by the foregoing restrictions. All copyright is reserved