Two banks are predicting prosperous times ahead for our primary exports, but warn of dark clouds looming in the form of rising costs, the export unfriendly exchange rate and slowing economic growth in developed markets.
Other than those concerns, Rabobank and Westpac Bank have both released reasonably upbeat forecasts for the primary sector.
They pick international dairy prices to ease but not to below historic levels. Beef prices are also expected to strengthen, while the outlook for lamb remains bright.
A Westpac Bank market outlook publication has picked the coming year as one of consolidation for the dairy industry, and is forecasting a final payout for this year of over $7 a kg for milk solids and an opening forecast price for the 2008-09 season of $6.50.
Both banks pick dairy prices to fall from their historic highs, in which commodity prices doubled in 12 months.
Rabobank said in its global focus publication that consumers in developing countries were starting to baulk at product prices, while production in Australia, Europe, United States, Argentina and New Zealand was increasing in response to exporters offering milk prices 40% to 60% above a year ago.
‘‘The global economy continues to expand at a handsome rate and favourable demographic and cultural trends are likely to remain in place throughout 2008.''
But the cost of milk production has increased throughout the world, meaning consumers have to pay more for dairy products.
Rabobank warned there were some risks for New Zealand from a global slowdown and Europe and the US diverting domestic product to export markets.
For sheep and beef farmers the buoyant forecast provides some comfort, given a second successive year of low lamb prices, this year 18% below the five-year average.
The two banks base their optimistic sheep meat forecast on falling international production, both export and domestic, as well as a sharp increase in prices of co-products.
‘‘Market forces are swinging to favour sheep meat producers during 2008,'' the Rabobank report said.
Westpac agreed, saying United Kingdom lamb prices were 20% higher than a year ago.
‘‘International lamb prices are rising and we expect further increases as solid demand comes up against reduced supply,'' it said.
There was also optimism beef prices would improve in the longer term, but shorter-term gains were unlikely until the value of the New Zealand dollar fell.
New Zealand beef exports have been in decline, due in part to animal retention for growth in the dairy industry and lighter slaughter weights, again influenced by the influx of dairy breeds.
Rabobank said that while the United States market remained New Zealand's most important, exports to that market fell 15,000 tonnes, or 8%, in 2007.
Beef supply was expected to continue to fall this year, due to dairy cow retention, while the dairy bull beef market was declining, due to high feed costs and competition for land.
In the longer term, the report said specialist beef producers could look forward to improved global conditions.
‘‘While grass-fed beef may not always suit the palate of some international customers, sharply higher feed grain costs are causing pain for intensively raised animal industries like chicken, pork and grain-fed beef. Production will fall until prices rise globally to cover these higher costs.''
Westpac said there was uncertainty given the ‘‘on-again off-again'' re-entry of US beef exports to Korea and Japan.
The US herd is also being liquidated, due to dry weather and high feed costs, while rain in Australia was discouraging cow slaughter, which combined should put upward pressure on prices.
The deer industry has started 2008 with renewed confidence due to rising venison and velvet prices which have held up during a period when they traditionally fall.