Content supplied by Rabobank.
Following several years of challenging market dynamics, New Zealand agricultural producers look set to be dealt a “significantly improved hand” in 2025, according to a new report by food and agribusiness banking specialist Rabobank.
In the bank’s annual flagship report, New Zealand Agribusiness Outlook 2025, titled ‘All Aces in Agriculture for 2025?’, Rabobank says New Zealand agricultural producers have faced numerous challenges across the last two years as the record high prices achieved for many agri commodities in 2022 were replaced by markedly lower prices in 2023 and 2024.
“The 2025 ‘deck’ looks much improved for New Zealand agricultural producers, providing a relatively strong hand for the year ahead,” report author RaboResearch senior agricultural analyst Emma Higgins said.
“While there are a couple of ‘wild cards’ and ‘jokers’ to navigate, all in all, we think the deck is stacked in the sector’s favour and, if we play our cards right, a royal flush of opportunities lies ahead for the sector in 2025.”
Ace in the deck
The ‘ace in the deck’, Ms Higgins said, was improved supply and demand fundamentals, which are expected to underpin more optimistic farmgate pricing for many of our key agri commodities.
“A contraction in beef numbers globally alongside strong demand from the US is likely to build upon an already strong pricing base for this year and beyond for New Zealand beef,” she said.
“Dairy producers are also likely to see balanced market dynamics in 2025, supporting record nominal farmgate pricing forecast for the 24/25 season.
“Sheepmeat, the laggard of the bunch of late, has kicked off 2025 with lamb prices nearly $2/kg ahead of last year. Aussie sheep numbers are finally dropping and good demand from the UK, EU and US has underpinned recent returns. And, if Chinese demand for mutton picks up, we could be looking at a ‘full house’ for farmgate prices across our major agri export sectors.”
The Trump Card
While the agri commodity pricing outlook looks largely favourable, the report says “President Trump’s return to the White House” is expected to keep markets volatile this year.
“The threatened trade duties and tariffs, if imposed, will likely weigh on global trade and economic growth and possibly evoke retaliation – providing more uncertain export settings amongst an increasingly-fragmented trading environment.” Ms Higgins said.
“For kiwis, two main risks lie ahead – a stronger US dollar and implications for related purchasing power and market access consequences. Agri commodities might not be immune to these risks – both positively and negatively – with the US being a key market for beef and the second-largest market overall for the primary sector, behind China.
The Joker
The report says the geopolitical supply chain war shapes as the ‘joker in the pack’ for New Zealand’s agri sector in 2025.
“The war in the middle east, including the ship re-routing away from the Red Sea piracy attacks, are on pause, but might not fade,” Ms Higgins said.
“The war in Ukraine can still impact grain markets, and therefore feed prices, if Russia is able to progress further west and limit Ukraine’s grain exports. Defence spending increases by governments are on the cards, and thus 2025 is likely to be characterised by increased trade tensions, protectionism, conflict, sanctions and national security concerns.
“This is the year that economic policy and economic statecraft really entwine towards a ‘grand macro strategy’, providing the setting for a geopolitical supply chain war where our usual export markets might not necessarily remain neutral playing fields. This will require kiwi exporters’ executive leadership teams and governance boards to think even biggerpicture and more long-term with regard to key markets.”
The Wild Card
Ms Higgins said re-emerging input cost pressure was the ‘wild card’ for the agri sector over coming months, in light of geopolitical tensions and global trade fragmentation.
“Global farm input prices, both for fertilisers and for plant protection products, are forecast to move sideways to slightly higher,” she said.
“Global urea and phosphate prices in New Zealand dollar terms have already inched upwards from 2024 lows and, with New Zealand importing most fertiliser, the weaker NZD was a key driver in this move.
“While we don’t expect very big price swings for 2025, we do see more upside than downside price risk over this year. Furthermore, while our global crude oil price outlook calls for Brent to drop below USD70 a barrel due to an oversupply, the early 2025 price rally is heavily driven by fear of escalation in the Middle East and coupled with a weaker New Zealand dollar also poses import cost pressure for refined products.”
The Queen of Hearts
The report says interest rates are the ‘queen of hearts’ for New Zealand agriculture in the year ahead with movements in the Reserve Bank of New Zealand (RBNZ) Official Cash Rate (OCR) likely to be crucial in determining the strength of 2025 hand.
“As we have seen in recent years, interest rate movements have had far reaching consequences for inflation and economic growth. Just as the ‘queen of hearts’ can change the game in a heartbeat, a sudden interest rate hike can turn the financial deck upside down,” Ms Higgins said.
“RaboResearch forecasts that the RBNZ will have the comfort they need to cut the OCR by another 0.50 ppts in February 2025 and to ultimately take the rate down to 3.25% by July this year.”
Commodity Outlooks
Dairy
Global dairy fundamentals remain mostly balanced moving into 2025 and, assuming normalised trading conditions, the year ahead should bring with it a period of prosperity for kiwi dairy farmers.
Beef
Global demand is likely to remain very strong over 2025, keeping farmgate prices above five-year averages. The outlook and positivity for cattle production continues for 2025.
Sheep
With upticks in global demand for sheepmeat and declining Australian sheep inventory, the outlook for sheepmeat in 2025 is vastly better than 2023/24, with a case for much improved optimism in the industry.
Venison
2024 saw reduced supply, but strong market recovery and an upswing in volume and value towards the US. DINZ North America Retail Accelerator project aims to add more value and boost US exports into 2025.
Kiwifruit
SunGold production looks likely to increase globally, with a similar theme likely for New Zealand’s kiwifruit exports. MPI forecast 2025 could deliver record export values.
Consumer foods
Food inflation has started the year under control. The outlook for commodities looks mostly favourable from a food price perspective, barring some notable outliers which will cause more headaches for consumers in 2025.
Farm inputs
The rise seen for many farm inputs over the past 12 months can partially be attributed to a sharp weakening of the New Zealand dollar. RaboResearch anticipates the NZD/USD cross to hover around current levels over the next 12 months, which should keep most inputs within a range.
FX & Interest Rates
Indications that inflation is now likely to be under control may give the RBNZ more room to cut the official cash rate (OCR) and the NZD will probably remain under pressure as the world enters a challenging new environment for global trade.
Oil and Freight
Donald Trump’s promise to “drill, baby, drill!” is aimed at lowering energy prices, but that could be limited by the high-cost structure of US producers. RaboResearch now estimates China has passed peak oil demand for transport fuels, and shipping rates could be pressured higher by tariff disputes.
Government and regulation
Change remains constant in this space, with potential movement ahead for: live exports by sea, more RMA reform, changes to the ETS, along with new Climate Change Commission members.
3 Comments
One issue being overlooked is the shutting of the Oji Plant at Kinleith. This plant supplies multiple New Zealand manufacturing sites with paper to make Multiwall sacks and cardboard boxes for dairy companies to export their goods in. There will be a few businesses scrambling to find another supplier before the closure in June. If paper has to be imported it will come at a price, not to mention the volume required.
The positives ahead are good news but this report ignores a key determinant impacting farmers bottom lines, mental wellbeing and desire to stay in farming. That is government policy, both central and local government. The frustration with many ill conceived regulations and the soaring costs of consents are a significant impact on morale and bottom lines, contributing to many farming families exiting the industry or ripe for carbon forestry takeover. The ongoing uncertainty created by an increasingly complex ETS and the ever present threat of the nonsensical methane tax add to the negatives impacting farmers. While the government has made some positive steps in policy, it is nowhere near what is needed and their back tracking on SNAs, Freshwater farm plans and silence on indigenous biodiversity legislation and RMA section 6 matters are a big concern.
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