by Nick Clark, National Manager General Policy
Fonterra lifts milk price forecast
Fonterra has raised its 2023/24 forecast farmgate milk price range to $6.50-$8.00 per kgMS (up from $6.00-$7.50), with the new midpoint of $7.25, up from $6.75.
The improved outlook is welcome news for farmers facing financial pressure. It reflects tighter milk supply both in New Zealand and overseas as well as improved demand reflected in recent increases in Global Dairy Trade auctions.
Looking ahead, there’s still plenty of uncertainty. The El Nino weather pattern may have further impacts on milk supply and be supportive of prices, but the global economy remains weak and facing risks which could impede consumer demand.
A new record low for farmer confidence
Fonterra’s boosted milk price forecast came after Rabobank’s September quarter Rural Confidence Survey, which hit a new record low.
The survey showed farmer confidence in the broader agricultural economy dropping to a net -72%. This was 15 points worse than June’s -57% and ‘beat’ the previous record low of -71% in December 2022.
77% expected conditions to worsen over the next twelve months and only 5% expected them to improve.
Rabobank observed that lower commodity prices had become the chief source of farmer anxiety, followed in this order by rising input costs, government policies, overseas markets, and rising interest rates.
It was a similarly bleak story for own farm business performance with a net score of -56%, another record low. Sentiment was dismal for both dairy and sheep and beef sectors, but it was net positive for horticulture.
Concernedly, a majority of farmers assessed their businesses as wither unviable or only just viable. 12% of farmers said unviable (up from 8%) and 40% said ‘just viable (up from 38%).
Food price inflation easing
Statistics NZ’s Food Price Index showed a further easing in annual food price inflation to 8.0%.
Comparing September 2023 with August 2023, the Index fell by 0.4% but it was up 0.1% after seasonal adjustment.
- Fruit and vegetable prices fell 3.9% (and down 0.9% after seasonal adjustment), with vegetables down 5.7% and fruit down 0.5%.
- Meat, poultry, and fish prices were unchanged, with beef & veal up 1.3% and mutton, lamb & hogget down 2.9%.
- Grocery food items were also unchanged, with bread & cereals down 0.9% and milk, cheese & eggs down 1.2%.
In September 2023 there were price increases for 49% of items measured by the index and 50% had decreases. This is an easing from the same month last year when 64% of items had increases and 35% had decreases.
On an annual basis, comparing September 2023 with September 2022, the Index was up 8.0%.
- Fruit and vegetable prices were up 1.4%, with vegetables down 1.1% but fruit up 6.4%.
- Meat, poultry, and fish prices were up 6.9%, with beef & veal up 2.5% and mutton, lamb & hogget down 2.5%. Pork, poultry, and fish all had larger increases.
- Grocery food items were up 11%, with bread & cereals up 11% and milk, cheese & eggs up 10.5% (with eggs up 55%).
Food price inflation had been over 12% as recently as June. 8.0% is still far too high, but its easing is a small bit of good news for struggling households.
Record high annual arrivals and net migration.
New Zealand’s annual migrant arrivals and net migration gain both hit record highs in August. But more Kiwis are taking flight, with migrant departures continuing to rise.
Statistics NZ’s International Migration Statistics show that for the year to August 2023 there were 225,400 migrant arrivals (up from 74,100 for the year to August 2022). There were 115,100 migrant departures (up from 84,900).
The resulting 110,200 net migration gain is not only the highest ever but a huge turnaround from a net loss of 10,800 for the year to August 2022. There was a stark divergence though in net migration between non-New Zealand citizens (a 152,800 net gain) versus New Zealand citizens (a 42,600 net loss).
Despite a strong annual picture, inflows for each of the five months from April were all well below their peak in March and monthly outflows are elevated – especially for New Zealand citizens. This has seen monthly net migration gains down from their earlier peak, although they’re still firmly positive.
Strong migration inflows have helped ease labour shortages and support the housing market, which has been recovering. Retail spending has been weak this year, but without the migrants it would have been even weaker.
Housing recovery continues
Record net migration is supporting the housing market so not surprisingly the Real Estate Institute of NZ’s August 2023 Residential Market Data shows the market continuing to recover.
September’s median sales price was $785,000, up 2.3% from August. The median sales price was still down 3.1% compared to the same month last year but continues a steady trend of improvement. The REINZ House Price Index was also down 3.3% year-on-year.
12 of 16 regions had annual declines in median sales prices, with the biggest falls for Taranaki (down 7.7%), Manawatu-Whanganui (down 7.0%), and Tasman (down 5.8%). Three regions had increases and one was unchanged, all in the South Island. Marlborough’s median price was up 25%.
The 5,439 houses sold in September was down a seasonally adjusted 1.4% compared to August but they were up 5.1% compared to September 2022. There were 7,812 listings in September, up 4.9% compared to August but down 0.9% compared to September 2022.
Meanwhile, the median days to sell a house decreased to 40, down 3 days from August and also down 7 days compared to September 2022.
The slight drop in seasonally adjusted monthly sales might be because buyers are waiting for the election outcome. But REINZ’s CEO was upbeat saying, ““September shows the ‘green shoots’ from previous months are continuing to grow. Confidence is emerging in the property market, and we are seeing signs of an upward trend”.
Tourism up in August but more slowly
Statistics NZ’s International Travel Statistics show a continued recovery in tourism, both inbound and outbound, but growth slowed in August.
Overseas visitor arrivals were 2.69 million in the August 2023 year, up 2.15 million from the August 2022 year. Meanwhile New Zealand-resident traveller arrivals were 2.40 million, up 1.74 million. Australia was the biggest source of overseas visitors (46%) and the most popular destination for New Zealand resident travellers (38%).
Both inbound and outbound visitors remain below pre-pandemic levels and are taking time to fully recover. For example, August 2023 month’s visitor arrivals were 82% of August 2019’s and only a little more the number for August 2015.
The August international travel statistics capture the inflows from the FIFA Women’s Football World Cup held in July and August. Inflows tailed off after the World Cup.
Job ads slip
After a surprise rise in August, job ads went back into decline in September, according to the monthly BNZ-SEEK Employment Report.
Job ads were 2.3% lower in September compared to August, reversing August’s 2.1% increase. Job ads were 25% below levels in September 2022.
The industry breakdown was varied. Seven industries had increases, including the ‘farming, animals & conservation’ grouping which was up 8%. 21 had declines.
Next week
As well as aftermath from the weekend’s election and possible uncertainty as to an incoming government (not to mention its policies), the main economic news for next week is the September quarter Consumer Price Index. Sharply higher petrol prices and large council rates increases could keep inflation at or above the June quarter’s annual rate of 6.0%, but more important will be whether core and underlying measures of inflation have moderated.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 12 October) show the North Island’s soils being mostly normal or wetter than usual for this time of year. Soils are significantly wetter in the Far North, Gisborne-Wairoa, and coastal Wairarapa. In the South Island, soils are significantly drier than usual in Tasman and Marlborough, while significantly wetter than usual from Kaikoura to Waimakariri and in Central Otago.
Exchange Rates
The NZ Dollar was stronger for the week against the Trade Weighted Index, up 1.0%. It was up against all our major trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was down 2 points to 5.68%, while the 10-year Government Bond yield was down 12 points to 5.35%.
The OCR is next reviewed on 29 November.
| This Week (12/10/23) | Last Week (5/10/23) | Last Month (12/9/23) | Last Year (12/10/22) | |
| OCR | 5.50% | 5.50% | 5.50% | 3.50% |
| 90 Day Bank Bill | 5.68% | 5.70% | 5.67% | 3.92% |
| 10 Year Government Bond | 5.35% | 5.47% | 4.99% | 4.51% |
Source: Reserve Bank of NZ
