February 9, 2010

2010 a better year for New Zealand's meat sector

As global economy recovery continues to gain momentum, creating a positive impact on food commodity prices, New Zealand's meat sector could be lifted this year.

While prices for some commodities are improving, it will take some time for agriculture to fully recover from the beating it received over the past 18 months, and downside risks are still around.
 

Agribusiness bank Rabobank, in its annual New Zealand Agriculture in Focus report, said while improved economic conditions are seeing increasing global demand for some agricultural commodities, much uncertainty remains. Rabobank says the New Zealand dollar remains high, inflicting serious head-winds on exporters, there are continuing tighter credit conditions and economic recovery remains subdued in key export markets, such as Japan and the US.
 

The report says that while the outlook for agricultural commodities in 2010 is increasingly positive with most fundamentals pointing towards rising food commodity prices, food and agri businesses should also build in contingencies for downside risks in 2010.
 

Drier-than-average weather in 2007 and 2008, and the prospect of better prices for other commodities, particularly dairy, saw many producers exit the industry or reduce their flock size.
 

A return to positive economic growth in key export markets in 2010 should support a general increase in global meat demand. But this is expected to be a slow and steady improvement, rather than a surge, and the high New Zealand dollar has led to disappointing farm gate prices in the first half of the new season.
 

The outlook for the beef sector is not yet as positive. While there is some potential for beef and grains to have a brighter second half of 2010, beef is being held back by subdued demand, in particular in the US.