by Nick Clark, Federated Farmers Manager National Policy
Fonterra’s updated forecast
Late last week Fonterra announced an update to its forecast farmgate milk price for the new 2022/23 season.
The updated range is $8.75-$10.25 per kgMS, up from its earlier forecast of $8.25-$9.75 per kgMS. This increases the midpoint of the range, which farmers are paid, by 50 cents to $9.50 per kgMS. The Co-op also announced a 2022/23 earnings guidance range of 30-45 cents per share.
Fonterra considers the outlook to be positive but subject to significant uncertainty and potential for volatility.
If it’s achieved, such a high farmgate milk price will be a relief for dairy farmers contending with strong inflation of farm input costs and higher interest rates.
Ag debt rises
Agricultural debt increased in May, according to the Reserve Bank’s monthly Sector Lending Statistics. Dairy debt had its first monthly increase for almost a year.
In May 2022, agricultural sector lending was $61.62 billion, up $180 million on April but still down $616 million (1.0%) from May 2021. This masked differences within the sector:
- Dairy cattle farming: $36.44 billion, up $94 million for the month and down $1.82 billion (or 4.8%) for the year.
- Sheep & beef cattle farming: $15.12 billion, up $38 million for the month and up $68 million (or 0.5%) for the year.
- Horticulture: $6.95 billion, up $106 million for the month and up $1.08 billion (or 18.3%) for the year.
- Other agriculture on farm: $2.34 billion, down $70 million for the month and down $26 million (or 1.1%) for the year.
In contrast to agriculture’s annual decline of 1.0%, annual growth in housing lending was 7.4% (continuing its recent trend of slowing annual growth) while business lending was up 8.9%. Personal consumer debt declined 6.6%.
Business gloom deepens.
ANZ’s monthly Business Outlook Survey for June saw business confidence tumble to dismal levels.
A net 62.6% of businesses expect general economic conditions to worsen over the coming year, a 7.0 point deterioration compared to May, which had itself been down 13.6 points compared to April. Agriculture was the most pessimistic sector with a staggering net 94.4% expecting it to worsen, a 12 point deterioration – the only positive for agriculture is that at least the pessimism could hardly get worse.
Own activity is a better indicator of economic growth and it fell back a further 4.4 points to a net 9.1% expecting their activity to worsen. But for agriculture this measure actually increased 10.4 points to a net 22.2% expecting it to increase. This made for a massive gap between agriculture’s expectations for the general economy versus their own activity.
Profit expectations worsened by a further 10.2 points to a net 41.5% expecting profitability to worsen. Agriculture was the most pessimistic with a net 61.1% expecting lower profits. This might be a better reason for agriculture’s very negative expectations for the economy.
Cost pressures eased slightly but remained acute with a net 93.5% of firms expecting costs to increase over the coming year (down 2.0 points), with all 100% of agricultural respondents expecting higher costs. Pricing intentions intensified to +73.7 (up 2.7 points), but as is always the case intentions were much lower for agricultural respondents (+44.4%) due to them mostly being ‘price takers’.
Forward expectations for inflation dropped a little from 6.18% to 6.02%. Agriculture had the highest expected inflation of 6.68%, reflecting big price increases flowing through on many farm inputs.
Jobs growth continues.
Employment increased in May according to Statistics NZ’s Monthly Employment Indicators.
Overall, across all industries there were 2.29 million filled jobs in May 2022, up a seasonally-adjusted 0.3% (7,500 jobs) compared to April 2022. On an annual basis actual filled jobs were up 2.8% (62,000 jobs) compared to May 2021.
Primary industries’ seasonally-adjusted filled jobs were unchanged for the month. The sector’s actual filled jobs were also unchanged compared to May 2021.
April and May’s increases in jobs followed Omicron-induced declines in February and March. This could push June quarter unemployment down even further to below 3 percent, but we have to wait to 3 August before that data is released.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 30 June) show soil moisture conditions significantly drier than usual in Matamata-Piako, coastal Canterbury south of the Waimakariri, and coastal Otago. Soil conditions are significantly wetter than usual in Hawkes Bay, Marlborough, North Canterbury, and the South Island High Country.
The NZ Dollar was down a little for the week against the Trade Weighted Index, slipping 0.6%. It was down against all our major trading partners except the Euro and the UK Pound.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was up 8 points to 2.86% while the 10 year Government Bond yield was down 13 points to 3.89%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 13 July.
|This Week (30/6/22)||Last Week (23/6/22)||Last Month (30/5/22)||Last Year (30/6/21)|
|90 Day Bank Bill||2.86%||2.78%||2.45%||0.35%|
|10 Year Government Bond||3.89%||4.02%||3.53%||1.77%|
Source: Reserve Bank of NZ