Primary Sector Outlook Stable says MPI 

December 16
by Nick Clark

The Ministry for Primary Industries has released its latest Situation & Outlook for the Primary Industries. 

It considers the outlook across the primary sector to be stable for the current year, as the dairy industry begins to rebound from 2016’s low and growth continues for the horticulture and forestry sectors. However, this is offset by a forecast 10.8 percent decline in meat and wool exports.

Total export revenue is forecast to be $36.7 billion for the year to June 2017, down $0.3 billion from the previous year.

Looking ahead, MPI is forecasting export growth of 5.4 percent per year from 2016 to 2021, when it expects primary sector exports to be $47.9 billion.  Much of the growth will be for dairy products, expected to rise by $7.3 billion (or 55.4 percent) to reach $20.7 billion.  Forestry, horticulture and seafood are all expected to continue posting steady growth over the next five years.

Total export revenue is forecast to be $36.7 billion for the year to June 2017, down $0.3 billion from the previous year.

Looking ahead, MPI is forecasting export growth of 5.4 percent per year from 2016 to 2021, when it expects primary sector exports to be $47.9 billion.  Much of the growth will be for dairy products, expected to rise by $7.3 billion (or 55.4 percent) to reach $20.7 billion.  Forestry, horticulture and seafood are all expected to continue posting steady growth over the next five years.

The downside is meat and wool where growth will only slowly recover from the current season’s drop and in 2021 it will still not have recovered completely.  Overall, from 2016 to 2021 its exports will be down $71 million (or 0.8 percent) at $9.1 billion.

As always commodity prices can be very volatile and their swings and roundabouts will continue to be the major determinant of export revenue and ultimately the prices farmers get for their products.

The Real Estate Institute’s monthly Rural Statistics, showed a revival in farm sales with 447 farm sales in the three months ended November 2016, up 31 (or 7.4 percent) compared to the same period last year.  Overall, there were 1,803 farms sold in the year to November 2016, 1.9 percent more than were sold over the year to November 2015.

The median price per hectare for all farms sold in the three months to November 2016 was $26,348, down 8.1 percent on the same period last year.  However, compared to November 2015 the REINZ All Farms Price Index rose 4.9 percent. The Index adjusts for differences in farm size, location and type, unlike the median price per hectare.

REINZ noted the increase in volumes reflects improving conditions in the rural market although it added that financial institutions are maintaining expenditure restrictions on farmers and continuing to insist on fiscal prudence.  This is not dissimilar to the messages from our banking Survey.

Meanwhile, the US Federal Reserve this week made a long awaited step towards normalising its abnormally low interest rates.  The ‘Fed’ (not to be confused with Federated Farmers!) raised its benchmark rate range by 25 basis points on Thursday morning to 0.50 to 0.75 percent.  It also signalled it will be raising rates faster in future than previously expected, planning three rises in 2017.  As the US normalises its monetary policy this should help being the NZ Dollar back to a more comfortable level for exporters.

Finally, Federated Farmers has released the results from its latest quarterly Banking Survey, undertaken at the end of November.

Overall bank satisfaction remains strong with 81 percent saying they were very satisfied or satisfied with their bank while 7 percent said that they were very dissatisfied or dissatisfied.

Mortgage interest rates continue to edge down to an average rate of 5.2 percent.  This is most likely because famers have been re-fixing at lower rates than those prevailing when they last re-fixed.  But overdraft interest rates edged back up to an average rate of 7.7 percent.  Overdraft rates are more likely to be on floating rates.

Quality of bank communication slipped a little but remained strong with 77 percent saying communication had been excellent or good while 7 percent said it had been poor.

Sharemilkers continue to be most vulnerable.  They reported a lower level of overall bank satisfaction (67 percent very satisfied or satisfied) and they were less happy with communication from banks (63 percent thinking it had been excellent or good). 

A finding of note is a pickup in pressure being felt by non-dairy farmers, mainly sheep & beef and arable farmers.  

Although still comfortably below that for dairy farmers, pressure on non-dairy farmers did buck the overall trend and picked up a notch compared to the August survey – after also increasing in August compared to May.  This increase in pressure on non-dairy farmers was both for mortgages (up from 7.5 percent to 8.8 percent) and overdrafts (up from 6.4 percent to 7.6 percent).

Thanks very much to the 721 people who completed the survey – without your interest and involvement we simply can’t do this important work.  Looking ahead, we will continue running the survey, but we will be moving from quarterly to six-monthly to ease the survey burden.  The next survey will therefore be in May.