Fonterra’s result
Fonterra’s annual results for the year ending 31 July 2022 confirmed a 2021/22 farmgate milk price of $9.30 per kgMS, a record high, and a normalised profit after tax of $591 million, up 1% on the previous year. The total dividend of 20 cents per share means the final cash pay-out for fully shared-up farmers will be $9.50, also a record high.
Fonterra described 2021/22 as a ‘good year for the Co-op’, with its decisions helping it ‘deliver both a strong milk price and robust financial performance in a tough global operating environment’. Its total Group revenue was $23.4 billion, up 11% for the year.
The high farmgate milk price is great news for Fonterra farmers, but the wider economy also benefits. Fonterra estimates $13.7 billion has been returned into the economy through milk price payments alone, which is then spent by farmers in towns and cities, underpinning rural, regional, and national economic growth and employment.
Fonterra considers the longer-term outlook to be positive, despite a number of risks. The 2022/23 farmgate milk price range remains at $8.50–$10.00 per kgMS, with a midpoint of $9.25. It also forecasts 2022/23 normalised earnings guidance of 45-60 cents per share.
Dairy prices up again
The Global Dairy Trade auction lifted at this week’s event, up 2.0% from the last event a fortnight ago.
The commodities were a bit mixed. Whole milk powder was up 3.7%, anhydrous milk fat up 4.0%, and cheddar up 2.1%. However, skim milk powder was down 0.7%, and butter was down 0.2%.
The average selling price was $US4,072 and 26,106 tonnes were sold.
This week’s increase follows a 4.9% increase at the last auction which halted a long slide in prices. Just how big that slide was is shown by the GDT Price Index remaining 24.2% below its peak at the start of March and 1.7% below where it was this time last year.
Farm sales slump, prices slip
The Real Estate Institute of New Zealand’s monthly Rural Statistics shows there were 204 farm sales in the three months to August 2022, down 20.0% compared to the three months to July 2022 and down 38.2% compared to the three months to August 2021.
1,545 farms were sold in the year to August 2022, down 15.2% compared to the year to August 2021. Dairy farm sales were up 2.6%, but other farm types were down. Dairy support was down 25.2%, grazing farms down 21.5%, finishing farms down 13.9%, and arable farms down 17.5%.
The median price per hectare for all farms sold in the three months to August 2022 was $25,690, down 6.5% compared to the three months to July 2022, and down 5.4% compared to the three months to August 2021.
Meanwhile, REINZ’s All Farm Price Index, which adjusts for differences in farm size, location, and type, decreased 8.3% in the three months to August 2022 compared to the three months to July 2022. However, it was still up 3.6% compared to the three months ending August 2021.
The farm property market has taken a hit. There is much caution and concern towards government policies, inexorable increases in faming costs are squeezing profitability, and volatile climatic conditions is impacting on production. Higher interest rates will also likely be having an impact, just as they are on the housing market.
Meat and dairy lead export growth
August saw big increases for dairy and meat exports but their growth continued to be overshadowed by yet another petroleum fuelled surge in imports, according to Statistics NZ’s monthly Overseas Merchandise Trade Statistics.
Goods imports of $7.9 billion in August 2022, up 22.1% compared to August 2021, continuing their run of strong growth. Petroleum and products had a 79% increase to $1.0 billion. Cereals had by far the biggest percentage increase of 683%, albeit only to $80 million. Imports of other chemicals were up 139% to $223 million while food residues, wastes, and fodder and fertilisers were both up 24.0% to $158 million and $124 million respectively.
Goods exports were worth $5.5 billion in August 2022, up 25.7% compared to August 2021. Dairy led the way. Milk powder, butter, and cheese exports were up 89% to $1.1 billion; preparations of milk, cereals, flour, and starch up 33% to $240 million; and caseins and caseinates up 78% to $103 million. Exports of meat and edible offal were also up strongly by 32% to $742 million.
The goods trade balance in August 2022 was a deficit of $2.4 billion, a worsening of the $2.1 billion deficit for August 2021.
On an annual basis, for the year to August 2022, goods exports were $69.0 billion, up 12.9% on the previous year. For the key primary sector export commodities:
- Milk powder, butter, and cheese: up 19.4% to $19.2 billion.
- Meat and edible offal: up 19.1% to $9.8 billion.
- Logs, wood, and wood articles: down 10.1% to $5.0 billion.
- Fruit: up 1.4% to $3.9 billion.
- Preparations of milk, cereals, flour, and starch: up 2.8% to $2.2 billion.
- Wine: up 3.5% to $2.0 billion.
- Casein and caseinates: up 49.5% to $1.6 billion.
In addition, live animal exports were up 7.8% to $496 million and wool exports were up 6.2% to $436 million. However, eggs, honey, and other animal products were down 8.2% to $470 million and vegetables down 6.6% to $446 million.
Annual growth in goods imports was huge, up 26.9% to $81.3 billion. There were particularly big increases for other chemical products (up 127%); fertilisers (up 87%); cereals (up 68%); logs and wood articles (up 63%); petroleum and products (up 60%); and iron and steel articles (up 50%).
The annual goods trade balance for the year to August 2022 was a huge deficit of $12.3 billion, nearly $10 billion higher than the previous year’s deficit of $2.9 billion.
Humming along
Manufacturing and services both expanded in August, according to the BNZ-BusinessNZ Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI).
The PMI for August was 54.9, up 1.4 points from July. A score greater than 50 means the sector is generally expanding, while a score less than 50 means it is generally contracting. BusinessNZ noted that the pick-up was influenced by New Orders (59.2) at its highest level since July 2021, along with Production (54.6) at its highest point for 2022, and it was the first time since May that all five sub-indexes were in expansion. There was also a decline in the proportion of negative comments from respondents, down from 62% to 54%.
The PSI meanwhile was 58.6, up 4.2 points. New Activity/Sales (67.1) and Orders/Business (66.5) had big gains, while stocks/inventories (59.6) was at its highest level since late 2019. Employment (50.8) was ‘somewhat lacklustre’ and Supplier Deliveries (49.6) remained in contraction, but the positive scores of the other sub-indexes was more than enough to push the overall result higher. There were also more positive comments (56%) than negative comments, a turnaround from previous months.
BNZ considers the strong scores for the PMI and PSI to be positive for September quarter GDP.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 22 September) show soil conditions across most of the North Island about average for this time of year. Conditions are wetter than usual across a swathe from Gisborne, Hawkes Bay, and Manawatu-Whanganui, and it remains drier than usual small in a patch in southern coastal Hawkes Bay. In the South Island, Kaikoura and Central Otago remain wetter than usual.
Exchange Rates.
Overall, the NZ Dollar was weaker this week, down 1.7% against the Trade Weighted Index. It was also down against all our key trading partners, including against the US Dollar where it has fallen well below US 60 cents.
Source: Reserve Bank of NZ
Wholesale Interest Rates.
Over the course of the week, the yield for the 90 Day Bank Bill was up 12 points at 3.74% while the 10 year Government Bond yield was down 3 points to 4.02%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 5 October. Expect it to be hiked at the very least by 50 points to 3.50%. With other central banks hiking more aggressively, most notably the US Federal Reserve which this week upped its policy rate by 75 points, ours could yet surprise on the upside.
| This Week (22/9/22) | Last Week (15/9/22) | Last Month (22/8/22) | Last Year (22/9/21) | |
| OCR | 3.00% | 3.00% | 3.00% | 0.25% |
| 90 Day Bank Bill | 3.74% | 3.62% | 3.38% | 0.62% |
| 10 Year Government Bond | 4.02% | 4.05% | 3.64% | 1.86% |
Source: Reserve Bank of NZ
