Commodity Prices in Hawkes Bay

Over the 5 years up until the 2005/06 season pastoral farming in Hawke’s Bay experienced a considerable upturn in prosperity, a direct result of greatly improved commodity prices for beef, lamb and mutton from those experienced in the previous decade, although wool pricesremained low. Farmer and investor confidence surged to high levels, a fact reflected in considerable increases in land prices. The combined affect of low lamb and wool prices and unseasonable drought severely has affected farm profitability from 2006/07. Net average farm profit is calculated to have dropped from $91,933 in 2004/05 to $55,542 in 2005/06, to $44,400 in 2006/07.

Future trends look considerably brighter for East Coast and Hawke’s Bay farmers. In June 2008 lamb prices are up 34% on the previous year and USA beef prices more than 20% with further increases anticipated (source Westpac Agribusiness). Westpac prdict $4.39/kg average return for NZ lamb in the 2008/09 season compared with $3.83 in the current season and 20 cents kg more for beef with an average of $3.36 for the coming season.

The high value of the New Zealand dollar continues to be a significant constraint on farm profitability however recent falls in exchange rates are significant and are likely accelerate in the near future, together with internal interest rates with which they are strongly related. Most significantly Allen Bollard, Governor of the Reserve Bank of New Zealand, recently emphasised the need for interest rate cuts based on evidence of a softening New Zealand economy. Allan Bollard has considerable room to move on interest rates as The Reserve Banks bench mark interest rates have been maintained at high levels compared to our trading competitors, reflecting successive government’s obsession with maintaining a low national inflation rate. High internal interest rates have made New Zealand a natural choice for international currency investment and speculation which has been the principal driver for New Zealand’s artificially high exchange rates.

In the long term it is anticipated that the New Zealand pastoral industry will be a major beneficiary of a reduction and hopefully even the elimination of European, Asian and North American farm subsidies.

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Filed under: Hawkes Bay, Investment, Moving to New Zealand, Pastoral