This year looks set to generate "a sense of sustained recovery" in New Zealand agriculture with favourable market conditions, Rabobank says.
In its annual Agribusiness Outlook, the bank said the year should be profitable for most producers across an unusually broad base of sub-sectors.
It did caution that where the industry chose to direct improved cash flow and focus during the sustained positive run would have important ramifications "for many years to come".
Global market settings were currently firmly in the favour of New Zealand farmers, Rabobank New Zealand country banking general manager Hayley Gourley said.
"The world economy is enjoying a broad-based recovery and the prices of the key commodities produced in New Zealand are generally high, while prices for key farm inputs, especially fertiliser, are generally low," she said.
The bank retained a bearish outlook for the New Zealand dollar over the next 12 months, which further played into the hands of the country’s export-focused agricultural producers.
An additional positive for the sector was the settled nature of New Zealand agriculture’s downstream processing and marketing industry, Ms Gourley said in a statement.
"Fonterra is making money in its offshore businesses and has cleared overhanging litigation, while other dairy processors are performing well.
"In the meat sector, recent ownership changes have now been bedded down which have contributed towards increased profitability and reduced debt levels and there now appears to be far greater surety of industry structure and strategy than evident in recent years.
"The horticulture industry has also made great strides in its processing capability of late and the recent investment in post-harvest processing, storage and infrastructure looks set to continue this year."
There would be curve balls to be dealt with during the year and those looked likely to come from local developments.
Dry conditions across the country would have flow-on impacts on production and costs across many of the key agricultural sectors and would constrain New Zealand’s capacity to capitalise on improved market conditions.
Considerable uncertainty also remained about how policy decisions made by the new coalition Government would impact the rural sector, while the Mycoplasma bovis outbreak was a further local industry development which must be addressed.
The direction of Government policy would become clearer as the year progressed and a lot more learned about how far the Government was willing to push policy on wages, foreign direct investment, carbon emissions and water.
To sustain the sense of momentum in New Zealand agriculture, a sensible regulatory approach would be required which had the buy-in of both farmers and consumers.
ASB’s latest Farmshed Economics report said 2017-18’s "wild weather" was continuing to "throw a spanner in the works" for New Zealand dairy production.
Early in the season, wet weather hampered production.
It rebounded with better weather in late spring but more recently, dry weather had hampered production and ASB had cut its nationwide production growth forecast to 1% from 3% previously. While the weather was hard work for farmers, stalling production had supported New Zealand dairy prices.
Overall dairy auction prices lifted 72.% over January, while whole milk powder prices surged close to 10%.
All up, the price strength over January reinforced ASB’s more optimistic 2017-18 milk price forecast of $6.50.
Lamb prices this year had continued from their levels of late-2017 Average prices over the month were bettered only by January 2012.
A modest seasonal decline was expected through late summer and autumn, and prices should remain strong for this time of year.
Per kilogram lamb prices fell only 10c/kg over January 2018 compared to 20c/kg average fall in the same period over the past five years.
The bank expected lamb prices to remain over $6kg for the remainder of the season.
There remained a risk that slaughter levels spike as the result of drought, initially pushing prices down.
Recent rain had reduced that risk, with the exception of the southern parts of the South Island.
Beef prices had also started 2018 on a very healthy note. January per kg prices for P2 steers, for example, had been the highest on record and the seasonal dip in prices had been modest to date.
After peaking near $5.70 kg back in November, P2 steer prices had fallen 31c kg through to the end of January.
That fall compared favourably to the 44c kg dip over a similar period last season.
