Dairy sector confidence hit by concerns over China, Greece
(4 August 2015 – New Zealand) Concern over the Chinese stockmarket and the instability in Greece have added to New Zealand’s agriculture sector losing confidence, with dairy in particular at a low point, according to the latest ASB Farmshed Economics Report.
“Concern about the Chinese stockmarket and Greek woes have spread to dairy markets, with dairy auction prices sliding 16 percent over July, and to their lowest point since dairy auctions began,” said ASB Rural economist Nathan Penny.
However, to the delight of exporters, including farmers, the New Zealand dollar (NZD) continues to slide, down four cents against the USD in the last month.
“Adding to the recent official cash rate cut, we predict two more cuts this year meaning we could be heading into a lengthy period of low interest rates.
“This will continue to put downward pressure on the NZD, with a drop to US$0.61 possible by early next year.”
This quarter’s special edition of Farmshed Economics looks at the Chinese stockmarket and Greek concerns and examines just what kind of impact this could have on New Zealand food export fortunes.
“With China our most important food market, disruptions there can have an impact on our exports.
“However, China’s falling stockmarket should have minimal impact on food demand as little wealth is tied up in shares and overall Chinese demand for food remains in place.”
For dairy, Penny believes concerns are more related to global oversupply, rather than anything specific to China.
“New Zealand’s non-dairy food exports are flourishing.
“Prices for beef, lamb, mutton, kiwifruit and wine have all steadily increased over the last four years, indicating that factors pushing dairy prices down are specific to dairy markets and separate from Chinese food demand.”
Turning to Greece, “while it is no doubt causing huge headaches for the Eurozone, the situation has little impact on NZ food exports given the tiny amount of exports we send to Greece,” said Penny.
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