Rural Economic Outlook & Agri Tech Nathan Penny ASB Senior - - PowerPoint PPT Presentation

Nathan Penny ASB Senior Rural Economist Rural Connectivity Symposium Wellington June 2018

Rural Economic Outlook & Agri Tech

2

Disclaimer

This document is a private communication and is not intended for public circulation or for the use of any third party, without the approval of ASB. The information contained in this document is given with an express disclaimer of

• responsibility. No right of action shall arise against ASB or its employees either

directly or indirectly as a result of this information. Those acting upon this information do so entirely at their own risk. This information does not purport to make any recommendation upon which you may reasonably rely without taking further and more specific advice.

3

Summary

Current market situation & outlook Rural sentiment ‘Trade war’ Technology

4

Agri incomes are very strong

Overall commodity prices highest since 2011 Milk price strong

Current spot price north of $7.00/kg

“Record” lamb prices Horticulture v. strong

Kiwifruit likely to crack $2bn

Record high forestry prices Risks US-China Trade war Slowing global growth

60 80 100 120 140 08 09 10 11 12 13 14 15 16 17 18

Source: ASB

Index 2014=100

Weighted average price for NZ's major export commodities denominated in NZD terms

NZ COMMODITY PRICE INDEX

5

5

Dairy: sitting relatively pretty

2018/19: we expect $6.50/kg Fonterra $7.00/kg ‘Spot milk price’ above $7/kg Farmers in black – Global market balanced – Butter is back – Risks mainly global ie Trump

1 2 3 4 5 6 7 8 9 10 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Long Run

MILK PRICE AND DIVIDENDS (per kg milksolid)

Source: Fonterra, ASB

$ ASB Milk Price forecasts Milk Price Dividend

6

6

Kiwifruit: cracking $2 billion

2018/19: Exports likely to crack $2bn Record gold crop 2nd highest green crop Zespri expects: Green $5.20-$6.20/tray Gold $9.70-$10.50/tray

Downside to green?

50 100 150 200 250 300 350 400 450 500 Mar Apr May Jun Jul Aug Sep Oct Nov

Millions KIWIFRUIT EXPORT VALUES

Source: Stats NZ

$M

2017 2018 2016

10 20 30 40 50 60 70 80 90 100 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

KIWIFRUIT PRODUCTION

Source: Zespri

m trays

Green - Hayward Zespri Gold Zespri Estimates

7

7

Lamb: where did that come from?

4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

LAMB PRICES

2015 Sources: AgriHQ $NZ per kg 2016 2017 2014 2018

Record prices Other markets have picked up UK slack Supply constrained 18/19 season:

– Potential to crack $8.00/kg Risks – price resistance – Global risks ie Trump

8

Rural Sentiment Weak

• 30
• 20
• 10

10 20 30 40 50 60 08 09 10 11 12 13 14 15 16 17 18

AGRICULTURE SECTOR ACTIVITY OUTLOOK

10-y ear av erage

Source: ANZ, ASB

%

9

Weather – weird and not very wonderful

• 10
• 5

5 10 15 20 25 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

MILK SOLIDS PRODUCTION (2017/18 season)

Source: DCANZ

ann % chg

For the 2017/18 season, production ended 0.6% lower than 2016/17

10

Mycoplasma bovis – Path of least regret

Phased eradication Circa $900m cost 142 herds Yr 1; 192 herds over 10 yrs Fieldays: lots of misinformation & lingering disagreement with action Regional variations i.e. Canty/Sthland Likely to support dairy prices

small/no impact on beef prices

Key date – late 2018/early 2019

1 2 3 4 5 6 2013 2014 2015 2016 2017

NZ CATTLE SLAUGHTER

Source: StatsNZ

million

11

12

Change of government

13

14

15

Developments to date

Aug ‘17 – investigation into Chinese theft of US intellectual property. Jan ‘18 – US puts tariffs on Chinese washing machines and solar panels. Feb ‘18 – the US DoC concludes investigation on the impact of steel and aluminium imports (Section 232 of the Trade Expansion Act). Mar ‘18 – US announces 25% tariff on imported steel and 10% on imported aluminium imports. EU, Mexico, Canada and Australia exempt. Mar ‘18 – US announces 25% tariffs on US$50bn of Chinese exports; in response to IP theft investigation. Mar ‘18 – China announces $3bn in tariffs on ~120 US products. Apr ’18 – China warns of tariffs on another $50bn in US goods. Apr ’18 – Trump calls for US $100bn in new tariffs, looking into products. May ’18 – Trump again threatens to impose 25% tariffs on $50bn Chinese goods. China agrees to buy more US goods. EU informs WTO of counter measures on US goods. Jun’18 – exemptions on steel and aluminium tariffs expire; tensions heighten between US and China, EU, Canada, Mexico with countermeasures proposed against the US. Trump administration considers levies on additional $100bn in imports and proposes additional announces tariffs on $34bn of Chinese products on July 6, new tariff list on $16bn products.

16

17

18

19

20

Blockchain – Agri application

21

Synthetics case study – History never repeats

22

What kind of farm is this?

Nathan Penny Senior Rural Economist Email: nathan.penny@asb.co.nz Linkedin: nathanjpenny