Economic Week - September 14

by Nick Clark

Sheep & Beef Outlook for 2018/19

Beef, lamb, and mutton prices are expected to remain firm at historically high levels, but increasing costs will erode farm profitability, according to Beef+Lamb NZ’s 2018/19 New Season Outlook.

At the farmgate, gross farm revenue for Beef+Lamb NZ’s national ‘All Classes Sheep and Beef Farm’ is estimated to average $545,900 per farm for 2018-19, up 0.7% on the previous year.  This is largely due to increased revenue from sheep, wool, and cash crop partially offset by reduced revenue from cattle.  With farm expenses forecast to climb 1.8%, farm profit before tax will be down 2.8% to an average $129,700.  In real terms (i.e., adjusted for inflation) average sheep and beef farm profit will be down 4.9% on 2017/18’s result.

For 2018/19 lamb export receipts are forecast at $3.1 billion, virtually unchanged on 2017-18 – the only two seasons to have surpassed $3 billion. However, mutton exports are forecast to decline 15 per cent to $466 million, due entirely to lower volumes.  Wool exports are expected to rise 4.1% to $565 million but beef and veal exports are expected to fall 3.7% to $3.42 billion.

Fonterra result

Fonterra’s 2018 Annual Results revealed the co-op recording its first loss in its 18-year life, a $196 net loss after tax. The Beingmate write-down and the Danone payout were important one-off events that pushed Fonterra into the red but even so its underlying performance was not great with a 22% fall in earnings before interest and tax and falls in its gross margin and in its return on capital, as well as its increase in debt.  More positive was that sales revenue was up 6% despite a 3% fall in sales volumes.

Fonterra admitted that it might have been too optimistic in its forecasting, including of the farmgate milk price which put pressure on its margins.  Looking ahead, Fonterra is maintaining its 2018/19 forecast farmgate milk price of $6.75 per kg MS and its forecast earnings per share of 25-35 cents. 

Fonterra has to lift its game and have a much better year.  Its new leadership has a lot to do.  This includes in its forecasting.  It is fiendishly difficult to forecast the impacts of global commodity prices, the exchange rate and the weather.  But maybe one lesson Fonterra can learn on its milk price forecast is that it is better to err a bit more on the side of caution and under-promise and over-deliver, rather than the over-promise and under-deliver.

Food Price Index

Food prices fell 0.5% in August (and down 0.8% when seasonally adjusted) and were down 0.1% on an annual basis, according to Statistics NZ’s monthly Food Price Index.

For the month, fruit and vegetable prices were down 2.1%; meat, poultry and fish prices were down 1.4% (with beef and veal down 1.8% and mutton, lamb and hogget down 4.5%); and grocery food items were up 0.5% (bread and cereals up 0.1% and milk, cheese and eggs up 0.5%).

On an annual basis, comparing August 2018 with August 2017, food prices were down 0.1%.  Fruit and vegetable prices were down 6.5%; meat, poultry and fish prices were down 0.9% (with beef and veal up 1.8% and mutton, lamb and hogget at 4.6%); and grocery food prices were up 0.1% (with bread and cereals down 1.1% and milk, cheese and eggs unchanged).

Economic Survey of Manufacturing

Statistics NZ’s quarterly Economic Survey of Manufacturing showed the volume of manufacturing sales falling a seasonally-adjusted 1.2% in the June 2018 quarter compared with the March quarter. This was the largest quarterly fall in five years, but was partly due to one-off events in the petroleum and chemicals sectors.  Meat and dairy product manufacturing sales were up 1.6% though.

Electronic Card Transactions

Increased fuel spending, driven by higher fuel prices, drove a seasonally adjusted 1.0% rise in retail card spending in the month of August 2018, according to Statistics NZ’s monthly Electronic Card Transactions.  Core retail spending (which excludes vehicle-related industries) rose a more modest 0.7% in August 2018. 

Comparing August 2018 with August 2017 overall card spending was up 6.3%.

Next week – GDP and Balance of Payments

The main economic news for next week will be Statistics NZ’s Gross Domestic Product.  Also of interest also will be its Balance of Payments statistics.

NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 13 September) show the country drying out relative to usual conditions for this time of the year.  Coastal Marlborough is still damper than usual though.

Exchange Rates

The NZ Dollar was down against the Trade Weighted Index basket of currencies and all of the main currencies we trade.


NZ Dollar versus

This Week


Last Week (6/9/18)

Last Month (13/8 /18)

Last Year (13/9/17)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renmimbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates

The 90-day bank bill rate the 10-year government bond rate were both pretty stable this week. The OCR has been steady on 1.75% since November 2016.