NZ dairy exports to surge by 2017 after weaker 2016, meat, wool stronger

Tuesday 15th December 2015

New Zealand's primary sector exports may rise 5.3 percent in the year to June 30, 2016, as gains in meat, wool, forestry, seafood and horticultural products make up for a drop in the value of dairy products, the Ministry for Primary Industries says.

The ministry's latest Situation and Outlook for Primary Industries report forecasts total exports for the sector of $37.6 billion in the current year, up from $35.7 million last year. Dairy products are the only segment seen falling, down 3.7 percent to $14 billion. Meat and wool exports are forecast to rise 10 percent to $9.91 billion.

The outlook for the 2017 year is even more bullish, led by a 32 percent surge in dairy products to $17.9 billion, driving overall primary product export growth up 16 percent to $43.7 billion as demand recovers, especially in China, and exporters benefit from a lower exchange rate. The ministry's latest forecasts have the kiwi dollar tracking near 60 US cents by early 2017, compared to a level closer to 73 cents assumed in its last report in June.

"We expect dairy revenue to recover in 2016/17 as whole and skim milk powder prices rise due to renewed Chinese demand for exports, New Zealand production increases, and exchange rates remain favourable for our exporters," the ministry says. In the current year, there is "some downside risk for potential drought conditions brought on by El Nino, which is factored into our forecasts."

It says El Nino is likely to have a negative impact on regions that account for about 35 percent of New Zealand's dairy production, but for the remainder the impact may be neutral or positive. Improvements in farming practices and increased irrigation may mitigate the impact on lamb production compared with the 1997/98 El Nino weather pattern. High prices for beef means cattle herds have already been subject to significant culling, putting them in better shape for a dry summer.

For dairy, the ministry forecasts whole milk powder prices will bottom out at $3.50 per kilogram of milk solids in the December quarter and will revive to $5.60/kgMS by the fourth quarter of 2016, "with Chinese demand supporting growth."

"We expect China's import demand to pick up in early 2016, once China works through its current dairy product inventories," the ministry says, noting that 80-90 percent of China's whole milk powder imports come from New Zealand.

BusinessDesk.co.nz

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