The recent surge in our currency is a real worry for farmer returns in this coming year, especially as most of our commodities are in short supply and are in demand in our export market.
This article analyses the effect currency had on our meat trade last year, and with the currency rising now at the start of the production season, and our government seemily unwilling to stop the situation, it could have a serious affect on our economy.
Beef and Lamb NZ's economic service quantified the cost of the currency in its New Season Update in September and used levels of US$0.68-0.73 to illustrate the effect.
At US 0.79 as it is today, using Beef and Lamb NZ's relative calculations, this could take $130 per head off bull returns and $30/Hd off manufacturing cow.
When we look at projected whole farm returns, an exchange rate staying this high for a significant period of time would probably push the all average sheep and beef farm into an annual loss situation. What a disappointment that would be with record demand for most of our commodities!
A high New Zealand dollar was last year responsible for an $800 million drop in NZ meat industry earnings. After earning $6.5 billion in 2008-09, the value of exports for the year ending June 2010 reached only $5.7b.The value of sheepmeat exports dropped $200m over the previous year to $2.8b despite a global shortage resulting in high in-market lamb prices. The value of beef exports also declined $200m to $1.2b reports The Rural News.
In its annual report the Meat Industry Association (MIA) says the economic crisis had less direct impact on the sector than on other industries. Global meat consumption actually increased in 2009 although below the rate of growth in previous years. But a high exchange rate, particularly over the peak processing season, eroded earnings for NZ meat exporters.
MIA chairman Bill Falconer says 2009-10 was another challenging year for meat companies. “While in-market prices for products such as lamb have been at some of their highest levels ever, these high prices have not been reflected in the returns to the industry, primarily as a result of exchange movements,” he says. The industry’s efforts to maximise the value of each carcase has led to significant exports of by-products.
13 Comments
This article is a hodgepodge of statisics designed to prove an agenda.
If there was a 'global shortage', why were volumes down? Mixing price, volume and exchange variances together doesn't show what is really happening.
You cant say "if it was a lower rate you would receive more money" because the situation is dynamic. If the NZD was lower the price in foreign currency would have been lower and the income in NZD would be the same.
The same works for costs. If the cost of oil had stayed at only 40USD /b and the NZD was as high as it is now, then the cost of petrol would be less, so farmers have 'lost' x amount of profit because of the 'high' oil price.
The US is delibrately devaluing their currency and this is being reflected in commodity prices.
This article is confusing nominal price and real value.
The excess liquidity caused by QE is also lifting commodities to record levels without the fundamentals to sustain the prices. When this comes down its going to be ugly really ugly, excess production due to high prices,poor demand and a high dollar.
calvin_attwood
Absolutely spot on mad GP,
Denninger has a great series of posts about this, this is a good one: http://market-ticker.org/akcs-www?singlepost=2246354
In summary from Denninger:
The Government is selling their debt to The Fed. The Fed is in turn debasing the currency. This causes the dollar to go down in value, which in turn causes all commodities denominated in dollars to go up in price.
But wages are not rising (unit labor costs) which means you are forced to absorb the increase in commodity prices without any increase in your earnings.
That's a tax increase.
It's that simple folks.
This isn't good for the economy, it's bad for the economy.
The Market will continue to play along for a while, right up until the reality of margin collapse is realized.
You buy stocks for future earnings. Those earnings are going to go the wrong way.
Tomorrow? Probably not.
But will it - with certainty?
Yes.
This is monetary suicide
David
I think that Calvin's analysis is right - in the absence of massive tax cuts to stimulate private demand. But that means massive downsizing of all levels of government expenditure - it is going to get very messy before and if these kinds of policies are enacted and given time to do their work.
Dr Jonathan Wilson
Listen to Jim Grant he even talks about land prices in Iowa
Neville C is right, context is needed. Ag commodities are out running the dollar. Alliance lifted the mutton schedule another 20c/kg today a massive 52% above it five year average and 25%up on last year,lamb selling over $6 per kg and wool holding its significant gains at yesterdays auction, Fonterra affirming their forcast today and lifting the advanced payout. Thats the real story on the ground!
Sheep Shagger
Hows the feed? We are skint up here, its cold and Ive no grass at all. Trying to get first draft of lambs next week, the works want my old ewes but Im going to hold off till later this year. Cattle are good buying as no stock is getting killed so no demand for replacements. Its a difficult year and we have missed spring up here, guess we just skip it and end up in summer, no seed head yet but I think thats were we will go now. Lots of farmers giving cropping another try, Im a little nervous and will probably step back for a bit and see what happens.
AJ
Been a slow spring here to but starting to go now as we,ve had 10 days of cracker weather(except a polar blast today). It will be a late season for lambs as everyone is going to stack plenty of wieght on to compensate for the losses. Theres alot of interest in Blue skys super heavy wieght contract of 25 to 30kg lambs. Stores will be gold, ive heard today of an on farm sale on Banks Penisular with $3kg being paid. I agree also on cattle I think they are really good shopping in comparison perhaps the dollar is spooking buyers? Did you go to the wool co op meeting?
Na, Im not into wool and haven't got my head around it all. I've a friend in the UK who is big into flooring, I mean big. He said times are tough with housing not doing so well so I guess wool will only go so far. Im looking at selling all my sheep with lambs at foot but no one has any money otherwise it would be a good option to flick them and get more cattle. Ylg bulls are still around the $500 dollar mark, they're small but they all are this year. Killed a lamb for the house today that broke its leg, I was surprised what good condition it was in, my bloody huntaway needs a good hiding, if I could just catch the bugger. Dont know how it broke its leg but I reckon he had a part in it.
Its lambs last week for the UK X-mas market hence the premiums.
Dam dogs ah!
Lots of demand for ewes with lambs at foot down here. Load em up and ship em south. Whats the prime schedule in the Hawkes bay?
Wool thing looks ok. Went to a meeting yesterday which had a big turnout. Most seem to be broadly supportive but somewhat grudgingly dipping into their pockets. I like it and will be signing up subject to a good read of the prospectus.
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