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The bank’s latest Agri Focus focused on the price outlook for New Zealand’s major agricultural sectors.
The expected environment still looked challenging for key livestock sectors, despite some expected improvement for the dairy industry.
In contrast, the main horticultural crops were on track to post near-record export volumes and still achieve solid prices.
It was a mixed outlook for sheepmeat prices. down side risks were possible due to Brexit impacts but on the positive side, tradeable supply was expected to tighten during New Zealand’s main production window.
That would be driven mainly by New Zealand’s 2016 lamb crop hitting new lows and some anticipated restocking in the main sheep-breeding regions during 2016-17.
Other positives included improved demand from China, as a solid winter consumption period appeared to have lowered frozen inventories.
United States import demand was also robust, due to better local economic conditions.
Normally, the size of the anticipated fall in lamb and mutton supply would push wholesale prices higher, but Brexit impacts of up to 30c/kg would provide an offset.
A key issue was a higher NZD/GBP, and end demand was also likely to be affected as it was one of the highest-priced meats.
The ability to pivot product into Europe could be limited too, due to increased UK supplies.
Lower New Zealand supply could support higher premiums on the shoulders of the season, especially for the Christmas trading period, due to low pasture covers in early lambing regions and a tight supply finish to the end of the 2015-16 season.
This year’s lamb crop was likely to hit a multi-decade low, and early industry indications were for a 2.4% drop.
The other drag was likely to be a lower overall lambing percentage for the national flock, the report said.
The beef market looked "finely balanced".
Australian and New Zealand supply was forecast to fall, but that would be offset by further increases in US supply.
Combined with solid demand indicators for beef consumption, that pointed to a continuation of current prices in the US.
There were some headwinds in the US and other key secondary markets in Asia.
Combined with an elevated NZD/USD, that was likely to see slightly lower farm-gate returns in the 2016-17 season.
Industry expectations were for New Zealand supply to decline by 37,000 head (-1.5%) in 2016-17, driven by lower dairy cull cow turn-off and the smaller beef-breeding herd of recent years having produced fewer calves, meaning lower prime beef production.
At the finer end of the wool clip, prices were expected to be supported by lower Australian supply, a pick-up in US woollen apparel demand and continued demand growth for luxury items within China.
At the coarser end of the clip, demand looked fairly steady and supply was constrained.
As long as the New Zealand dollar headed back towards US70c, that should support farm-gate prices, although not quite at the levels achieved in 2015-16.
US import demand for woollen floor coverings had lifted off its post-GFC lows over the last two years as housing and construction market activity had started to increase.
In China, the housing market might have peaked in the second quarter of 2016.
However, in the longer term, the first and second-tier cities would continue to provide demand growth for high-end household furnishings, such as woollen carpets.
One headwind was depressed cotton and polyester prices.
Tight New Zealand venison production was expected to support farm-gate returns at multi-year highs in 2016-17.
The industry also had some success in growing demand in non-European markets and outside the game season in more traditional market.
That provided plenty of intermarket competition and allowed average returns to be optimised with tight supply.
The main headwinds were a low euro and British pound, as well as widening price margins with other meat proteins.
The bank expected farm-gate pricing for 2016-17 to average $7.60 (up 6%).
Trading activity and prices for the domestic grain market were very depressed.
Dairy demand could pick up with an improved outlook for the milk price.
Domestic supply could tighten quickly, too.
Growers planted less feed grain in winter-autumn and had low intentions for spring planting.
While that suggested an improvement at some point, international grain prices looked biased to go even lower.