Economic Week - October 4

by Nick Clark

Strong outlook for sheep and beef

Beef + Lamb NZ has released its New Season Outlook 2019/20 report and it makes for pretty good reading for sheep and beef farmers.
The report forecasts farm profit before tax of $173,000 for its typical ‘all classes sheep and beef farm’, around the same as that for the previous 2018/19 season.  When adjusted for inflation it is only around 2% lower than 2011/12’s figure which was the highest since the early 1970s.
Average gross revenue is forecast to be $629,800, up 1.2% on the previous season, with sheep revenue up 1.1%, cattle revenue up 2.2%, but wool revenue down 1.3%.  Meanwhile, average farm expenditure is forecast to be $456,800, up 1.8%.
These forecasts are based on an average exchange rate of $US0.66 and currently it is around $US0.63.  If the NZ Dollar stays lower or reduces further this would boost profitability (revenue and expenditure would both rise, but revenue would rise by more). 
As with any economic forecasts there are lot of uncertainties, including global markets, exchange rates, and weather conditions, all of which are out of farmers’ control. But overall, the immediate outlook for sheep and beef farms seems positive and this ought to be a much needed boost to flagging farmer confidence.

Ag debt slips
Agricultural debt slipped by $99 million in August to sit at $63.8 billion, according to the Reserve Bank’s monthly Sector Lending Statistics.  For the year to August 2019, agricultural debt grew by $1.6 billion or 2.5%.
There has been a steady deceleration in the growth of agricultural debt over recent months.  Tighter lending conditions imposed by the banks on their rural customers will be a big reason for the slowdown.
In comparison the annual growth rates for housing (up 6.4%) and business (up 6.7%) were higher but personal consumer has flat-lined (up 0.3%).

Dairy prices stable
This week’s Global Dairy Trade auction edged up 0.2%.  This comes after a 2.0% increase at the auction a fortnight ago.
Whole milk powder, which comprises over half of the volume traded, slipped 0.2%, but skim milk powder, with just under a quarter of volume, was up 2.7%.  The other smaller commodities were a mixed bag.
Overall, the average selling price was $US 3,306 and 38,716 tonnes were sold.
The GDT has been relatively stable since mid-June but compared to the same time last year it is up 12.5%.

Overseas investment stats
The Overseas Investment Office this week announced decision statistics from the 2018/19 year.
Of interest to farming, 86 decisions included ‘sensitive land’ with a net investment of $933 million. 60 were approved, four were declined and 22 were withdrawn or lapsed.  Agriculture, forestry and fishing was the biggest sector for sensitive land decision but there were also decisions for other sectors like manufacturing and construction.
The new special forestry test was introduced in October 2018 and out of the 11 decisions made through till June, four were farm to forestry applications and seven were for existing forestry.

Business confidence slumps again
Last week it was Rabobank’s Rural Confidence Survey and this week came two dismal business confidence surveys.
Firstly, ANZ’s monthly Business Outlook Survey showed headline business confidence down 2 points to a net 53.5% of businesses expecting general economic conditions to worsen over the next 12 months.  For agriculture, confidence slipped 7 points to a net 75.6% expecting worsening conditions, making it easily the most pessimistic sector.  For own activity, a net 1.8% of businesses expected their own activity to reduce over the coming 12 months, down 1 point.  For agriculture a net 2.4% expected their activity to reduce, a 17 point worsening in expectations.
Secondly, the NZIER’s Quarterly Survey of Business Opinion, a survey closely watched by policy makers, slipped further from June.  Headline business confidence dropped four points to a net 35% expecting a worsening in general economic conditions, its lowest level since March 2009.  Meanwhile a net 11% reported demand falling over the September quarter, the weakest reading since September 2010.
NZIER said the survey results portend annual GDP growth easing below 1% later this year.  Farmers are not surveyed in the QSBO, but businesses reliant on farming will have been surveyed. The Government has continued to downplay the concerns of business but pressure is building for further stimulus from monetary policy and from fiscal policy.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 3 October) show that soil conditions across of most country continue to be ‘about average’ for this time of year.  The main exceptions are Gisborne, coastal Wairarapa and Central Otago drier than usual and Wairoa, Kaikoura, Christchurch, and coastal Otago which are wetter than usual. 

Exchange rates
Overall, the NZ Dollar was virtually unchanged against the TWI.  It was down against most of our key trading partners, but was up against the Australian Dollar and the UK Pound.



NZ Dollar versus

This Week


Last Week (26/9/19)

Last Month (3/9/19)

Last Year (3/10/18)

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 90 Day Bank Bill interest rate was down 7 basis points while the 10 Year Government Bonds lost 10 basis points.  The OCR is next reviewed on 13 November.



This Week


Last Week (26/9/19)

Last Month (3/9/19)

Last Year (3/10/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ