1. travel
2. tourist destinations
3. australia and new zealand

Agribusiness Outlook 2015
New Zealand
What to watch in 2015
Rabobank swing factors
Environmental Regulations
Rabobank has identified 4 key swing factors that we believe will be critical in
shaping the outlook for New Zealand agriculture in 2015.
Regulation changes
•Farmers are beginning to feel the effects of domestic regulation changes first hand with the practical
aapplication of the National Policy Statement for Freshwater Management (“NPS”) regulating the amount of nitrogen,
phosphorous and sediment that can leave a farm’s boundaries.
Some regions are still working through the NPS and how it will apply to farmers to their areas, with any changes potentially
impacting current farm practices.
•The potential reform of the Resource Management Act could introduce changes to
environmental law going forward.
Currency Capers
Exchange rate
1
The winds of regulation change will continue to blow through New Zealand agriculture in 2015.
2
A strengthening US currency off the back of a growing US economy will provide a more favourable
exchange rate for NZ food and agriculture exporters. Quantitative easing may have come
to a halt in the United States, but it’s only just getting started in the Eurozone, and
the Japanese are showing no signs of slowing up.
¥
€
•The rise of the US dollar is expected to continue in 2015, something that is most welcome for New Zealand F&A exporters,
but bear in mind that a strong USD tends to lead to lower USD denominated commodity prices, and the NZD is likely to get
stuck in the middle of some considerable currency movements in 2015 which could see it gain against the euro and yen.
•Indeed, the NZD recently hit a record high against the Euro and Rabobank expects the Euro to remain weaker for 2015,
challenging returns for exporters to the Euro zone. Chinese economy
The Year of the Sheep
3
Sheep don’t seem very scary to us Kiwis, but in Chinese culture the Year of the Sheep is not
the most auspicious year by any means. So will 2015 be a year to toast in the Chinese economy or
the year that some background risks move more in to the foreground?
•As New Zealand’s largest agricultural trading partner the sector is highly dependent on the prosperity and growth of China’s
economy. Of particular importance for agriculture is continued wage and income growth.
•Rabobank forecasts Chinese economic growth to slow to 6.8% in 2015, below the five year average of close to 8.5%.
•China appears to face structural challenges that may act as a drag on growth in 2015 and beyond.
•A serious slowdown in Chinese economic growth will have broader and negative effects for
the global economy.
Export markets
Keeping eyes on the road
4
New Zealand enjoys favourable access into many major agricultural export markets, but there is
always potential for barriers to be thrown up in other parts of the world that will impact global markets
and access for agricultural exports in 2015.
•Protectionist foreign trade policies and technical barriers to trade are often unpredictable
and as a result have the potential to impact access to export markets and product demand.
•Government intervention to protect domestic industries is a real risk for New Zealand. Calls for Chinese government
protection of the local dairy industry are growing louder in China in the wake of lower milk prices and small farmers exiting
the industry. Should this sentiment be reflected via regulation changes it may lower demand for imported powder products. •Self-sufficiency ambitions by the Indonesian government are causing uncertainties around boxed beef imports.
•The removal of EU milk production quotas from 1 April 2015 will be felt through 2015 and beyond. While not a trade barrier
as such, the resulting herd expansion in Europe will have an impact on New Zealand via higher global milk supply. Commodity price outlook
Sector
DAIRY
BEEF
SHEEPMEAT
Price
Driver
Lower global milk supply in 2015, coupled with gradual improvements in demand should be enough to tighten the
market and underpin a modest price recovery by the end of the year
Much tighter supply from Australia, combined with strong demand from the US, will support historically high farmgate
and export prices in 2015
Strong demand from China, combined with slowly improving conditions in the EU will support farmgate prices in 2015
VENISON
Rabobank expects prices to remain relatively constant throughout 2015
WOOL
WINE
UREA
FX
OIL
The strong NZD relative to key export market currencies is limiting price upside. While demand for end use products is
improving, competitive man-made fibre prices are also subdued
Ample carry over stocks and the resilient NZD are likely to moderate grape demand from wine companies in the near
term despite a smaller harvest in 2015
Global supply continues to outweigh demand which is expected to keep pressure on prices in the first part of 2015
All-in-all, the NZD is forecast to beat a more gradual path lower against the USD over the course of 2015
Oil prices have fallen 50% since June and Rabobank see a marginal recovery over the course of the year; but not
before mid-2015
Agribusiness Outlook 2015 – New Zealand | 1
Seasonal Outlook
Early 2015 will shape farmer fortunes for most of the year
with dry conditions impacting several regions, especially
in the central North Island and South Canterbury.
However, feed available for purchase is relatively plentiful
- if product prices make economic sense.
NIWA expects the remainder of summer to be warm and
dry for most regions with a 50% chance of below normal
soil moisture for the east of the South Island. Some risk
exists for below normal soil moisture for the north and
east of the North Island, but most likely normal soil
moisture elsewhere.
Rainfall is expected to be in the near normal range for
most of New Zealand for the first quarter of 2015, with
the lower half of the South Island at some risk of below
normal rainfall.
What to watch:
• Dry weather to have a much greater production impact if wider irrigation restrictions eventuate in the
greater Canterbury region. Opuha and Rangitata irrigation users are already under pressure, with others
potentially to follow.
• The impact on supplementary feed prices if dry conditions become more severe or widespread. Low
milk prices have freed up feed availability and lowered the cost of some supplements, but this could change
quickly.
Agribusiness Outlook 2015 – New Zealand
2
Dairy
World Dairy Prices
Market Outlook
6,000
2015 WMP price
Rabobank expects low farmgate milk prices in export regions will
see milk supply growth hit the brakes in 2015. This will take time
as US producers continue to benefit from low feed costs, and the
EU is about to unwind milk quotas.
Global demand is being shaped by a number of bearish factors
including slow economic growth, weak Chinese buying, trade
restrictions in Russia and falling emerging market currencies.
These dynamics look set to persist for much of 2015.
5,000
USD/tonne FOB
Dairy commodity prices have fallen below the level that
Rabobank believes are sustainable in the medium term. However,
a recovery in prices may still be some time away.
4,000
3,000
2,000
Butter
SMP
WMP
Cheese
Source: USDA, Rabobank 2015
However, lower global milk supply and gradual demand
improvement should be enough to eventually tighten the market
and underpin a (modest) price recovery in H2 2015. New Zealand
dairy farmers should prepare for a relatively modest initial
2015/16 milk price forecast.
Dairy farmers’ on-farm decisions around supplement feed usage
and input purchases determine the fortunes of the many
suppliers to the dairy sector that are bracing for a lean 2015.
This will be the year that much additional processing expansion
comes online and competition for milk is likely to further intensify
in key regions.
What to watch:
• As the world’s largest importer, Chinese
purchasing of dairy commodities through
2015 will be the single biggest influence on
the global market balance.
• The removal of milk production quotas in
Europe from 1 April will have long term
implications for global markets; but the short
term response by farmers is the critical factor
to watch.
Agribusiness Outlook 2015 – New Zealand
3
Beef
North Island Bull Price
Market Outlook
560
2015 price
Lower dairy prices, together with hot and dry conditions
have underpinned higher slaughter rates over the final
months of 2014 and into Q1 2015.
520
500
480
460
NZD c/kg cwt
The continuation of tight supplies in the US and an
appreciating USD during 2015 will support strong imported
US prices and subsequently underpin strong New Zealand
farm gate prices.
540
440
420
400
380
360
The increase in supply has driven a softening in farmgate
prices from the record highs in November 2014, but in 2015
are expected to remain at historically high levels due to
tight supplies globally and robust international demand.
The Free Trade Agreement between New Zealand and South
Korea will have positive implications for New Zealand
exports and will help keep New Zealand competitive with
the US and Australia.
Global demand for beef remains robust, while global
supplies in 2015 are being shaped by a continuation of low
herd numbers and tight supply. With rising prices expected
globally, consumer willingness to pay will be tested in some
markets.
340
NI Bull 300kg 2013/14
NI Bull 300kg 2014/15
Source: NZX Agrifax, Rabobank 2015
What to watch:
• With cattle slaughter during both 2013 and
2014 at 35 year highs, Australian cattle
supplies are expected to record a sharp
contraction (around one million head less) in
2015, which will see less competition and
stronger demand for NZ lean beef.
Agribusiness Outlook 2015 – New Zealand
4
Sheepmeat
South Island Lamb Price
Market Outlook
650
2015 price
600
Slaughter levels for lamb remained above the five year
average in 2014, and higher mutton slaughter is likely to
mean flock numbers easing further.
Sheepmeat exports remained relatively steady in 2014 with
the Chinese market accounting for 40 percent of total
shipments – up from 13 percent in 2009. Strong Chinese
demand for carcases has driven higher shipments, although
average returns are still well below the more lucrative EU
and US markets.
550
NZD c/kg cwt
Farmgate prices in 2015 are forecast to remain around
2014 levels. Farmgate prices averaged 21 percent higher
year-on-year in 2014, at NZD 5.60/kg cwt but have
declined sharply since November as dry and hot conditions
force producers to send stock to processors.
500
450
400
South Island 17.5kg YX 2013/14
South Island 17.5kg YX 2014/15
Source: NZX Agrifax, Rabobank 2015
What to watch:
Average EU export returns in 2014 increased 12 percent
year-on-year to NZD 10/kg FOB. But EU conditions remain
lacklustre with 2015 consumer sentiment unlikely to
improve and a weaker Euro may reverse the 2014 lift in
export returns.
Strong demand from China, improving conditions in other
key export markets, and tightening supplies out of Australia
will help to support prices throughout 2015 despite
challenging seasonal conditions early in the year.
• New Zealand’s fulfilment of the EU quota
continues to decline, with exports in 2014
only making up 68% of the available 228,254
tonnes.
• While China has absorbed a lot of this product,
the industry needs improved demand from
the higher valued markets in 2015 to
significantly move prices.
Agribusiness Outlook 2015 – New Zealand
5
Venison
South Island Stag prices (NZD kg/cwt)
Market Outlook
800
2015 price
780
760
Export market conditions were challenging in 2014. Strong
competition from EU suppliers and sluggish economic
conditions, particularly in Europe, reduced demand for New
Zealand product.
In 2014, South Island stag prices averaged slightly higher
than 2013 at NZD 6.66/kg cwt. Prices declined sharply at the
conclusion of the peak chilled demand period, with the
seasonal low price of 2015 expected to be around NZD
6.20/kg cwt.
The NZD recently hit a record high against the Euro and
Rabobank expects the Euro to remain weaker for 2015,
challenging returns for venison exporters to the Euro zone.
Rabobank forecasts NZD/EUR in January 2016 to average
0.673. On the other hand, a strengthening USD and US
economy will help further drive demand from US consumers.
740
NZD c/kg cwt
While there are some encouraging initiatives for the New
Zealand deer industry, the outlook for 2015 and longer term
remains challenging as stock numbers decline or at best
stabilise and producers specialise where returns are better
from velvet production and the trophy market.
720
700
680
660
640
620
600
2013/14
2014/15
Source: NZX Agrifax, Rabobank 2015
What to watch:
• The approval of processing plants to
export venison to China has been an
encouraging development for the industry.
Although export volumes remain very small,
the strength of consumer demand is yet to
be tested given it’s a relatively unknown
product in the Chinese market.
Agribusiness Outlook 2015 – New Zealand
6
Wool
NZ Coarse Crossbred Wool Prices
Market Outlook
600
2015 price
580
560
Crossbred wool was a leading fibre performer globally in the
2013/14 season evident in New Zealand with average
strong wool auction prices up 21 percent YOY in 2013/14.
540
520
The strong NZD against a basket of currencies in key
markets for New Zealand wool including the AUD and EUR
will likely dampen possible price gains for 2014/15.
Positively, the weakening NZD against the USD should
assist trade into China.
NZD c/kg
500
480
460
440
420
400
Trade in interior textile and soft furnishing products has
improved, bolstering the recent strength in global crossbred
type prices. Low oil prices impacting man-made fibre prices
may restrict further growth in 2015.
Wool production maintains a downward trajectory in New
Zealand, with production in 2014/15 forecast to decline 4.7
percent. Sheep numbers are now around 29.8 million head
– a 9 percent decline over the past five years. This
reduction in supply should provide some price support.
Developments in China will be important for New Zealand
wool to watch in 2015 with slower economic growth
expected and increased environmental regulations for wool
processors providing some obstacles for the industry.
Coarse Crossbred 2013/14
Coarse Crossbred 2014/15
Source: NZWSI, Rabobank 2015
What to watch:
• Environmental regulations in China come
into full force in January 2015 for early stage
wool processing, potentially impacting
production costs and in conjunction with
other increased operating costs may threaten
viability of some early stage processors.
Agribusiness Outlook 2015 – New Zealand
7
Wine
Wine Annual Sales and Production
Market Outlook
400
2015 price
350
NZ wine export sales resumed growth over the course of 2014
as supplies from the bumper 2014 harvest filled wine company
tanks to the brim. By year’s end, annual wine export volumes
were roughly 10 percent higher than a year earlier.
With significantly more wine (circa 30%) to market in 2014/15,
NZ wine companies are being frustrated by the strength of the
NZD against major cross currencies. The notable exception
being the USD, which is helping to support growth in the US
market that could elevate it to become NZ wine’s no. 1 export
market in 2015.
300
Volume (ML)
There appears limited scope for average wine grape prices to
rise in 2015, even assuming a more moderate vintage than last
year, with more than ample carry over stocks and the resilient
NZD likely to moderate demand from wine companies in the
near term.
250
200
150
100
50
0
-50
-100
Net Inventory Impact
Annual Sales to 30 June
Wine Production (1 yr lag)
Source: NZ Winegrowers, Rabobank 2015
What to watch:
Fortunately growth in most major markets (with the exception
of Australia) remains buoyant, however average export prices
are under pressure as discounting becomes more prevalent and
bulk wine shipments rise in share in readiness for the 2015
harvest.
The upcoming vintage will be critical to the outlook for the
sector in 2015 and beyond. Early signs suggest more moderate
vineyard yields in 2015 which is welcome given that most wine
producers will carry adequate stock into 2015/16.
• The size of the New Zealand wine harvest
has displayed a high degree of variability in
recent years, making it especially difficult for
wine companies to manage inventory from
year-to-year. How the 2015 harvest plays out
will have a major bearing on industry balance
moving forward.
Agribusiness Outlook 2015 – New Zealand
8
Fertiliser
Global Fertiliser Prices
Market Outlook
550
2015 Urea price1
For end-users the critical decision is getting the balance right,
as many sectors face subdued commodity prices leaving less
revenue to pay for inputs.
Global urea markets remain well balanced supported by new
capacity coming on-stream with potential for weaker prices in
the early stages of the year. Spring demand in the Northern
Hemisphere will be pivotal in setting the tone for global urea
markets in 2015.
Global phosphate prices moved higher through 2014 due to
improved demand coupled with supply constraints. There is
uncertainty over China’s export tax policy but the expectation
is for a flat year-round tax which would even out trade flows.
Strong demand and tighter supply supported an increase in
potash prices during 2014. Global potash markets enter the
new year with lower inventory levels which could support
higher prices but this will be tempered by new capacity coming
online.
500
450
USD/tonne
The outlook for fertiliser markets looks mostly favourable for
end-users with global markets likely to remain well balanced at
lower levels. However, weaker currencies take some of the
gloss off.
400
350
300
250
Urea
DAP
Source: Bloomberg, Rabobank 2015
What to watch:
• Potential acreage shifts by crop farmers
as they react to changing crop economics
and planting conditions which will drive
fertiliser demand
• Government policy continues to play a
role in global nutrient markets;
particularly changes to Chinese export
polices.
Agribusiness Outlook 2015 – New Zealand
1) Prilled, China
9
FX
NZD/USD
Market Outlook
0.95
2015 price
Extraordinary monetary policy across the world’s major
economies will continue in one form or another in 2015.
Quantitative easing may have come to a halt in the US, but it is
widely expected to start in the Eurozone this quarter and it’s
business as usual at the Bank of Japan.
0.90
0.88
NZD / USD
A softening Terms of Trade pulled the NZD lower vs. the USD in
2H-2014, further aided by the cessation of the US Federal
Reserve’s Quantitative Easing policy in November 2014.
0.93
0.85
0.83
0.80
0.78
0.75
0.73
0.70
The US economic recovery is expected to maintain its
momentum in 2015. And even though we expect subdued
inflation and wages growth to limit the prospect of an interest
rate hike until late in the year, relatively sound economic
fundamentals will support the USD.
New Zealand monetary policy is expected to hold steady for
most of 2015. Despite robust growth, dairy incomes have been
hard hit, and wage and price pressures are anticipated to remain
largely in-check, while falling oil prices are also disinflationary,
suggesting the RBNZ’s hawkishness may no longer be
necessary.
All-in-all, the NZD is forecast to beat a more gradual path lower
against the USD through 2015. Volatility will naturally remain a
constant in global financial markets as policy makers look to
steer a very fragile world economy through unchartered waters.
Historical
Forecast
Source: RBNZ, Rabobank 2015
What to watch:
• The timing of the first US interest rate
hike. Questions remain around when the US
economy will be ready to accommodate higher
interest rates. If this is sooner rather than
later, the NZD may depreciate more sharply
against the USD in 2015.
Agribusiness Outlook 2015 – New Zealand
10
Oil
Brent Oil
Market Outlook
120
2015 price
110
Oil prices have fallen nearly 50% from their June 2014
highs; driven mainly by oversupply and lower demand.
90
USD/BBL
The fall in oil prices has occurred in a number of phases.
Firstly, there has been a structural oversupply largely driven
by the rapid rise in US output which was exacerbated by
slowing demand in emerging markets. Finally, a surge in
downside momentum is likely to have triggered speculator
selling.
100
80
70
60
50
40
As it stands, OPEC members have been at pains to stress
that they will not be cutting quotas anytime soon.
Rabobank deem it too early to say with any conviction that
the near-term base in Brent oil prices has been reached,
although recent price action does look to be forming a base.
Source: Bloomberg, Rabobank 2015
What to watch:
• The actions of OPEC surrounding oil
production in 2015 will be key in determining
prices
However, Rabobank does expect oil prices to gradually edge
higher over the course of 2015, but more so in the second
half of the year, with Brent Crude to average USD66/bl in
2015.
• The risk of increased Middle- Eastern
The current state of play in global oil markets bodes well for
consumers with petrol prices reflecting lower oil prices and
likely to remain at current lows for much of 2015.
• Russia is perhaps the biggest wildcard
tensions and ongoing negotiations between
Iran and the US will also be a critical issue to
watch
given how much it is suffering from lower oil
prices.
Agribusiness Outlook 2015 – New Zealand
11
Food & Agribusiness Research and Advisory
Luke Chandler
General Manager, Food & Agribusiness Research &
Advisory, Australia & New Zealand
+61 2 8115 2217
[email protected]
Hayley Moynihan
Director of Dairy Research,
New Zealand and Asia
+64 3 961 2907
[email protected]
Michael Harvey
Senior Analyst - Dairy & Farm Inputs
+61 3 9940 8407
[email protected]
Marc Soccio
Senior Analyst – Wine, Horticulture & Rural Economics
+61 3 9940 8437
[email protected]
Graydon Chong
Senior Analyst - Grains & Oilseeds
+61 2 8115 4091
[email protected]
Angus Gidley-Baird
Senior Animal Protein Analyst
+ 64 2 8115 4058
[email protected]
Matthew Costello
Analyst - Animal Proteins
+61 2 8115 2233
[email protected]
Georgia Twomey
Commodity Analyst
+61 2 8115 2246
[email protected]
Emma Higgins
Research Analyst
+64 3 961 2908
[email protected]
Roselle Pera
Business Co-ordinator
+61 2 8115 4157
[email protected]
Ben Larkin
Agricultural Analyst
+61 2 8115 2741
[email protected]
Rabobank New Zealand
Nearest branch call 0800 722 622
www.rabobank.com.nz
This document is issued by Rabobank Australia Limited incorporated in Australia (“Rabobank”). The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable,
but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. This document is for information purposes only and is not, and should not be construed as, an offer or a
commitment by Rabobank or any of its affiliates to enter into a transaction. This information is not professional advice and has not been prepared to be used as the basis for, and should not be used as the basis for, any financial
or strategic decisions. This information is general in nature only and does not take into account an individual’s personal circumstances. All opinions expressed in this document are subject to change without notice. Neither
Rabobank, nor other legal entities in the group to which it belongs, accept any liability whatsoever for any direct, indirect, consequential or other loss or damage howsoever arising from any use of this document or its contents
or otherwise arising in connection therewith. This document may not be reproduced, distributed or published, in whole or in part, for any purpose, except with the prior written consent of Rabobank. All copyrights, including
those within the meaning of the Copyright Act 1968 (Cth), are reserved. Australian law shall apply. By accepting this document you agree to be bound by the foregoing restrictions.
© Rabobank Australia Limited, Level 16 Darling Park Tower 3, 201 Sussex Street Sydney Australia, +61 2 8115 4000