Better year for dairy farmers predicted

A return to the days of many farms being converted to dairying is not expected, a leading rural financier says.

Rabobank senior protein analyst Hayley Moynihan said a more conservative approach by farmers, tighter credit and lower farm values would not see a return "to the heady days of new dairy conversions".

However, milk prices would see most farmers return to cash profitability this year and, if expenditure was controlled, potentialprofits would be comparable to 2007-08, she said.

Mrs Moynihan expected milk production to grow 2% this year due to herd expansion, feed supplements and moderate climatic conditions over most of the country.

Most farms survived last year's savage fall in milk prices, but she said it would take two years to adjust farm management and to shake off the full effects of the recession.

The beef sector might prefer to forget 2009 due to lacklustre prices as the economic downturn hit New Zealand's key export markets.

"The rising share of manufacturing beef proved a blessing as the world endured the impact of a severe economic downturn and consumers bought cheaper beef cuts."

As a result of the shift in production, the United States now accounted for about 55% of New Zealand's production, up from 50% in 2008.

Mrs Moynihan said beef trade with Russia, the European Union and other "new" destinations had either ceased or diminished in importance.

As economies improved, beef purchases should increase but it would be slow, with a steady recovery in prices rather than a surge.

Supporting manufactured beef exports was an expected fall in slaughter numbers in the US, as well as lower pork and poultry production.

"Both are competitors of manufacturing beef in the US market."

The New Zealand beef kill was also expected to fall as the beef cow herd rebuilt, due to an end to drought and few dairy cows culled.

"However, the prospect of achieving prices significantly above five-year averages is unlikely without a major depreciation in the New Zealand dollar."

The rise in sheep meat prices last year was described by animal proteins senior analyst Wendy Voss as defying the global downturn, reaching levels 26% higher than 2008 and 39% higher than the five-year average.

But last year was a distant memory as price pressures for farmers returned for the 2009-10 season.

As with beef, Ms Voss said without a significant reduction in the exchange rate, pressure on prices would remain.

Recovery would be helped by economic growth in the countries with whom we traded, but it would be slow and steady.

"While declining flocks in destination markets will provide some support to demand for imported lamb, the slow economic recovery will limit the prospects of a surge in demand sufficient to overcome the impact of the New Zealand dolla,r at least for the first half of the year."

Venison prices continue to lurch according to supply.

From a peak kill of 800,000 in 2005, Mrs Moynihan said the numbers processed in this year could fall to 400,000.

"The 22% decline in export volume for the year to October 2009 is indicative of the year-on-year supply fluctuations the market has had to accommodate."

She forecast easing prices during this year's chilled season, but falling supply and greater market diversification should see prices well above their lows of 2003-06.

"When combined with improved velvet prices and lower farm input costs, 2010 is expected to provide another year of positive profitability."

This year could be a turning year for wool prices, as the beleaguered fibre responded to an improved business cycle and higher consumer spending, Rabobank commodities analyst Adam Tomlinson said.

"With increasing demand for fibres overall in 2010 and higher costs for chemical synthetics, international fibre prices are expected to stay at levels above their five-year average. However, the interior textile fibre market may not experience the same price gains as expected in the apparel market, where supply is relatively tight."