The ASB bank commodities report on the agricultural sector states that despite the uncertain global conditions farmers in NZ are experiencing a good season for the following reasons:
1. Even with the fall for US$ dairy prices NZ farmers enjoyed a record Fonterra payout in 2011.
2. Farmers have enjoyed the best lamb prices ever in 2011 – over $8/kg.
3. Wool prices have reached new highs over recent months.
4. Beef prices remain above average and the outlook is positive for 2012/13.
5. The OCR at 2.5% – 8.25% in 2008 – means farmers benefit from lower borrowing costs.
6. The climate of late has meant favourable pasture conditions. Lamb numbers are expected to rise 5.8% and dairy production 10% higher than last season.
All the above have enabled farmers to deleverage from the high debt levels that built up by 2008 – improvement in the debt to earnings ratio for farmers. See graph.
Long-term with strong demand from developing countries, especially in Asia, for quality food this will be reflected in strong commodity prices and a strong NZ$.