ASB report presents an optimistic outlook for NZ's agricultural sector
The latest ASB Rural Quarterly report has presented an optimistic outlook for New Zealand’s agricultural sector, highlighting dairy's strong recovery, promising forestry prices, and challenges in the meat market.
Central banks’ decision to maintain high interest rates sparked hope of dodging a prolonged global recession.
“Markets have become more bullish... and the global economy might manage the fabled ‘soft landing,’” said Nathaniel Keall (pictured above), ASB economist.
Dairy sector witnesses significant recovery
Dairy prices have surged approximately 22% from their lowest points, although they remain below previous year’s peaks.
“We’ve twice revised our 2023/24 milk price forecast since our last report,” Keall said, noting the impact of reduced Chinese purchases on the market.
Forestry prices expected to support construction boom
Despite early and severe downturns, the forestry sector is set for a modest rebound, thanks in part to domestic demand.
“With OCR cuts likely in the second half of the year... that should bolster construction activity,” Keall said, forecasting a rise in house prices and subsequent demand for forestry products.
Meat industry faces demand and supply challenges
The meat market struggles with lower global demand and an oversupply, particularly in lamb.
“Australian lamb production rose a whopping 13% to record highs in 2023,” Keall said, highlighting the impact on lamb prices due to increased Aussie supply.
ASB’s commitment to New Zealand’s rural sector
Aidan Gent, ASB general manager rural banking, stressed the bank’s dedication to supporting the food and fibre sector through fluctuating commodity prices and other challenges.
“We are excited about the future of food and fibre in New Zealand and are committed to providing support to the sector to enable it to continue to be productive and profitable,” Gent said. “There are always challenges, but we believe from challenge comes opportunity and we are backing the sector all the way.”
Last month, ASB reported a cash net profit after tax (NPAT) of $707 million for the second half of 2023, marking a 12% decrease, or $96m less, compared to the previous year. This decline is attributed to a difficult interest rate cycle and rising bank funding costs, leading to a 26-basis point drop in the bank's net interest margin (NIM).
More about the ASB Rural Quarterly report here.
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