Economic Week - October 23

by Nick Clark

Uncertain outlook for sheep and beef

This week Beef + Lamb New Zealand (B+LNZ) released its New Season Outlook 2020-21, forecasting lower sheep and beef export receipts flowing through to lower farm-gate prices, lower farm revenue, and a squeeze in farm profitability.  

Unsurprisingly, the Outlook found COVID-19’s impact on global economies, consumer demand and trading channels to have impacted and will continue to impact on export prices.   Meanwhile, the effects of last season’s drought will hit production this season.

Although sheep and beef exports held up well in 2019/20 it was very much a season of two halves with the first half stronger and the second half weaker, due to COVID-19 and drought. 

Looking ahead, the Outlook is forecasting a decline in both sheep and beef export revenue in 2020-21 compared to the 2019/20 season.  Lamb export revenue is forecast to decline by 14.8% and sheep meat co-products to decline by 7.9%, while beef and veal export revenue is forecast to decline by 9.0%.  The outlook for wool is not at all encouraging, with wool export revenue forecast to decline by 36.0%.

The declines in sheep and beef export revenue will depress farm-gate prices, farm revenue, and farm profitability.  The Outlook predicts that the average sheep and beef farm’s gross revenue will fall 10.2% to $559,300 and that profit before tax will fall 26.3% to $115,100.  In this environment sheep and beef farmers are expected to tightly control their expenditure, with average expenditure forecast to drop 4.8% to $444,200.

There is understandably much uncertainty in these forecasts.  A lot will depend on whether and how quickly the global economy recovers from the pandemic and other uncontrollable factors like the exchange rate and the weather.  However, despite the uncertainty around the forecasts the B+LNZ’s Outlook continues to be a most valuable and useful resource.


GDT up

Dairy prices edged up 0.4% at this week’s Global Dairy Trade auction, its third successive rise. 

The small increase is positive considering news of higher global milk production which, in combination with the state of the global economy, might have been expected to add more of a headwind for dairy prices.

Three commodities increased in price while three reduced.  On the upside whole milk powder (up 0.3%), butter (up 3.3%), and cheddar (up 3.0%) posted rises, while on the downside skim milk powder (down 0.2%), anhydrous milk fat (down 0.5%), and lactose (down 9.0%) posted falls.

Overall, the average selling price was US$3,159 and 34,648 tonnes of product were sold.

The GDT Price Index is now 4.3% lower than its level at the same time last year.


Farm sales up

The Real Estate Institute of New Zealand’s Rural Market Statistics have shown a surge in farm sales, with 401 farm sales over the three months to September 2020, up 48.5% on the same period last year.

Despite this latest strong quarterly increase, farm sales volumes were still down for the full year. 1,285 farms were sold in the year to September 2020, 5.6% fewer than for the year to September 2019.   Sales of dairy farms were down 24.1%, grazing farms down 14.9%, finishing farms down 9.3%, and arable farms down 4.6%.

Sales prices were also up, although more modestly.  The median price per hectare for all farms sold in the three months to September 2020 was $26,917, up 4.5% on the three months ended September 2019.  The REINZ All Farm Price Index, which adjusts for differences in farm size, location, and farming type, increased 0.7% over the same period.

REINZ said the big increase in farm sales and (to a lesser extent) sales prices reflects greater confidence in the agricultural sector, with its importance being increasingly recognised post-COVID.


Business confidence improves

The latest NZIER Quarterly Survey of Business Opinion shows business confidence has improved, reflecting a pick-up in demand over the September quarter.

A net 1% of businesses reported an increase in own trading activity – a big turnaround from the net 37% reporting a decline in the previous June quarter. The bounce was supported by massive stimulus from the Government and Reserve Bank and there was pent-up demand from the earlier lockdown evidence in stronger retail sales.  The housing market has been buoyant and there has been plenty of construction activity.  Domestic tourism through the winter months provided a bit of a buffer for the tourist-related sectors (e.g., hospitality and accommodation) and there is the ‘feel-good’ factor from COVID free status.

Nonetheless, businesses on the whole are still feeling gloomy about the general economy, although pessimism is easing.  A net 39% of businesses expect a deterioration in general economic conditions over the coming months – rather better than the June quarter’s net 58%.

While the improvement in confidence is good news the risk is that the rebound will run out of steam.  In 2021 the economic challenges will become more apparent, especially for tourism-related sectors which will miss out on the summer peak in international visitors.  Current expectations and intentions for own activity may not be borne out. 


Pick-up for manufacturing and services

New Zealand's manufacturing sector experienced a pick-up in expansion during September, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).  The seasonally adjusted PMI for September was 54.0 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). 

This was up 3.0 points from August. BusinessNZ noted that the relaxation of Auckland’s lockdown will have boosted activity in September, while BNZ cautioned that the expansion “should not be confused with above average activity levels. Rather, it indicates growth off the low base set earlier in the year. Growth has not yet been enough to recoup previous loses, but some progress is being made”.

Meanwhile, activity in New Zealand’s services sector managed to move just into expansion in September. The BNZ - BusinessNZ Performance of Services Index (PSI) was 50.3, which was up 3.1 points from August.  Again, the PSI’s return to expansion (albeit close to no change) came after lockdown restrictions were lifted in Auckland.


Population growth strong

Statistics NZ’s Sub-National Population Estimates showed strong population growth, with all regions and all but one district posting population rises over the year to June 2020.  Highlights:

  • New Zealand’s total population was $5,084,300, up 2.1% for the year.
  • North Island’s population 3,896,200, up 2.1%; South Island’s population 1,187,300, up 2.0%.
  • All 16 regions experienced population growth, with the highest percentage growth in Bay of Plenty (2.8%), Northland (2.6%), Otago (2.4%), Waikato (2.3%), Tasman (2.3%), Auckland (2.2%), and Canterbury (2.2%).
  • The slowest-growing regions were West Coast (0.2%), Southland (1.1%), and Gisborne (1.2%).
  • The only territorial authority to decline was Buller, decreasing 1.1%.
  • The fast-growing territorial authorities were Queenstown-Lakes (5.8%), Selwyn (5.2%), Tauranga (3.5%), Central Otago (3.5%), Kaipara (3.2%), Waikato (3.1%), Western Bay of Plenty (3.1%), and Waimakariri (3.0%).


NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 22 October) paint a similar picture to last week in that soils across the northern parts of the North Island from Northland to East Cape and coastal Wairarapa are dryer than usual for this time of year.  In the South Island, coastal Canterbury and North Otago are dryer than usual.

Exchange Rates

Over the past week the NZ Dollar weakened 0.5% against the TWI and it was down against all our major trading partners, except the Australian Dollar.



NZ Dollar versus

This Week


Last Week (15/10/20)

Last Month (22/9/20)

Last Year (22/10/19)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates

Over the course of the week the 90 Day Bank Bill interest rate was unchanged while the 10 year Government Bond yield was up 1 basis point.  The Reserve Bank will next review the OCR on 11 November.



This Week


Last Week (15/10/20)

Last Month (22/9/20)

Last Year (22/10/19)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ