Rabobank suggests that it will only be the dairy sector facing a very difficult year in 2016, with variable prospects for other farmers

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New Zealand’s agricultural sector is looking at mixed prospects in 2016, with dairy facing another difficult year but most other sectors expected to perform well, according to a new industry report.

In its Agribusiness Outlook 2016, global agricultural specialist Rabobank says dairy prices continue to be weighed down by strong supply growth, particularly out of Europe after the recent removal of quotas.

Releasing the report, Rabobank general manager Country Banking New Zealand Hayley Moynihan said the recovery in dairy prices now risks arriving too late to enable a confident start to the 2016/17 season.

“Dairy prices are expected to begin to pick up in the latter half of 2016, but the timing of the recovery will be driven by how quickly the brakes can be applied to global milk production,” she said. “With cash flows in the dairy sector expected to remain tight throughout 2016, thankfully there is little change foreseen in operating costs such as fuel, fertiliser and interest rates, although supplementary feed costs will hinge on pasture growth."

“A weak and falling NZ currency will provide only partial compensation for low international dairy prices for local farmers, particularly given hedging already in place.”

While dairy faces another tough year, Rabobank foresees a generally strong year ahead for most other agricultural sectors.

Rabobank general manager of Food & Agribusiness Research Tim Hunt said solid demand in key offshore markets, recent progress in export development and generally tight global supply is likely to bring another good year for New Zealand producers of beef, wool and horticultural products.

“While beef prices have lost some ground in recent months, they remain well above multiyear average levels, and are expected to receive support from a generally tight global market,” he said “Wool producers will face headwinds from cheap synthetic fibres, but see support from declining production in New Zealand and Australia.”

Mr Hunt said the wine industry was looking set for a better year in 2016, with improved climatic conditions likely to underpin an increase in production, average prices holding up well and good momentum for New Zealand product sales in the US and Chinese market.

“The trend in consumer preferences is positive for New Zealand wine, as we see a shift towards higher-priced wine and lighter styles,” he said.

Lamb producers face a less buoyant 2016, Mr Hunt said.

“Challenging seasonal conditions have driven a surge in slaughter rates early in the season, with prices likely to remain under pressure given generally sluggish demand,” he said.

The Rabobank Agribusiness Outlook found currency, financial volatility, the Chinese economy, climate and oil prices were all swing factors which had the potential to impact the prospects for New Zealand agriculture in 2016.