While heightened macro-economic and geopolitical risks are likely to exert a strong influence on global agricultural markets, New Zealand agriculture, on balance, looks set for a generally positive year.
In its annual research report, New Zealand Agriculture in Focus 2012, Rabobank said those risks would result in considerable uncertainty in the country's food and agribusiness sector.
However, the economy would be buffered to some degree from the global economic weakness by developing trade ties with Asia and reconstruction spending in Christchurch.
Rabobank expected agri-commodity markets would face a "soft landing" in 2012 after prices for many commodities hit record levels in early 2011.
While the outlook for the global economy had soured, growth in the emerging economies remain supportive of demand, and supply remained tight for many agri-commodities with global inventories resting at modest levels.
Despite the generally positive outlook for prices, the year ahead was expected to present a set of issues affecting competitiveness for those operating in New Zealand's food and agribusiness sector, Rabobank's food and agribusiness research and advisory division general manager, Luke Chandler, said.
A historically high New Zealand dollar would continue to challenge export competitiveness and earnings, while the risk of further downward revisions to global growth could not be ruled out.
The slim yet real prospect of a third consecutive La Nina weather pattern was also at play while the emissions trading scheme would continue to place pressure on operating costs in the agribusiness supply chain, despite an easing carbon prices.
Other factors affecting the New Zealand agri sector were continuing bilateral trade negotiations with significant markets, including Russia, India and South Korea, and maintenance of robust yet economical biosecurity protocols for agriculture.
In the dairy industry, good climatic conditions and record high market returns coincided in 2011 but chances of a repeat performance this year were low, the report found.
Global dairy fundamentals remained solid despite economic and financial turmoil, which was likely to provide firm, but not spectacular, prices and profitability through 2012.
Sheep and lamb prices were likely to decline slightly this year from the record highs of last year, while beef prices were expected to rise modestly. Ongoing economic problems in some of the main wool-consuming countries posed a downside risk for New Zealand wool exports.
The bank's agribusiness review for February showed dairy commodity prices in local currency terms eased 5% on average in January as the New Zealand dollar gained around 3% against the US dollar.
Compared with last year, prices were around 12% lower in NZD terms and were noticeably weaker for butter and whole milk powder.
Farm-gate venison prices fell below $8/kg in January for the first time since the middle of last year as EU markets faced the challenges of economic reform, along with the traditional change in export mix that occurred at that time of year.
In sheep meat, New Zealand farm-gate prices have started to soften from last year's record highs.
By January, prices had fallen below $7/kg for the first time since the middle of last year.
That followed the UK retail price trends, with many cuts being offered at a discount to last month's prices. However, retail prices for lamb were still well up on previous years.
