Rural Economic Outlook & Agri Tech Nathan Penny ASB Senior - PowerPoint PPT Presentation

Rural Economic Outlook & Agri Tech Nathan Penny ASB Senior Rural Economist Rural Connectivity Symposium Wellington June 2018

Disclaimer This document is a private communication and is not intended for public circulation or for the use of any third party, without the approval of ASB. The information contained in this document is given with an express disclaimer of responsibility. No right of action shall arise against ASB or its employees either directly or indirectly as a result of this information. Those acting upon this information do so entirely at their own risk. This information does not purport to make any recommendation upon which you may reasonably rely without taking further and more specific advice. 2

Summary Current market situation & outlook Rural sentiment ‘Trade war’ Technology 3

Agri incomes are very strong Overall commodity prices Index highest since 2011 NZ COMMODITY PRICE INDEX 2014=100 140 Source: ASB Milk price strong 120 Current spot price north of $7.00/kg “Record” lamb prices 100 Horticulture v. strong 80 Kiwifruit likely to crack $2bn Weighted average price for NZ's major export commodities denominated in NZD terms Record high forestry prices 60 08 09 10 11 12 13 14 15 16 17 18 Risks US-China Trade war Slowing global growth 4

Dairy: sitting relatively pretty MILK PRICE AND DIVIDENDS $ 2018/19: (per kg milksolid) 10 Source: Fonterra, ASB 9 we expect $6.50/kg Milk Price Dividend ASB Milk Price 8 forecasts 7 Fonterra $7.00/kg 6 5 ‘Spot milk price’ above $7/kg 4 3 Farmers in black 2 1 – Global market balanced 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Long Run – Butter is back – Risks mainly global ie Trump 5 5

Kiwifruit: cracking $2 billion $M KIWIFRUIT EXPORT VALUES 500 Source: Stats NZ Millions 2018/19: 450 2018 400 350 2016 Exports likely to crack $2bn 300 250 2017 200 Record gold crop 150 100 2 nd highest green crop 50 0 Mar Apr May Jun Jul Aug Sep Oct Nov m trays KIWIFRUIT PRODUCTION Zespri expects: 100 Source: Zespri 90 80 Green $5.20-$6.20/tray 70 Green - Hayward Zespri Estimates 60 50 Gold $9.70-$10.50/tray Zespri Gold 40 30 20 Downside to green? 10 0 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 6 6

Lamb: where did that come from? Record prices $NZ per kg LAMB PRICES 8.00 Other markets have picked up 7.50 2018 UK slack 7.00 2017 6.50 Supply constrained 2015 6.00 18/19 season: 2014 5.50 – Potential to crack $8.00/kg 5.00 2016 4.50 Risks Sources: AgriHQ 4.00 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun – price resistance – Global risks ie Trump 7 7

Rural Sentiment Weak AGRICULTURE SECTOR % ACTIVITY OUTLOOK 60 10-y ear av erage 50 40 30 20 10 0 -10 -20 Source: ANZ, ASB -30 08 09 10 11 12 13 14 15 16 17 18 8

Weather – weird and not very wonderful MILK SOLIDS PRODUCTION ann % chg (2017/18 season) 25 For the 2017/18 season, production ended 0.6% lower than 2016/17 20 15 10 5 0 -5 Source: DCANZ -10 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 9

Mycoplasma bovis – Path of least regret Phased eradication NZ CATTLE SLAUGHTER million 6 Source: StatsNZ Circa $900m cost 5 142 herds Yr 1; 192 herds over 10 yrs 4 3 Fieldays: lots of misinformation & 2 lingering disagreement with action 1 Regional variations i.e. Canty/Sthland 0 2013 2014 2015 2016 2017 Likely to support dairy prices small/no impact on beef prices Key date – late 2018/early 2019 10

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Change of government 12

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Developments to date Aug ‘17 – investigation into Chinese theft of US intellectual property. Jan ‘18 – US puts tariffs on Chinese washing machines and solar panels. Feb ‘18 – the US DoC concludes investigation on the impact of steel and aluminium imports (Section 232 of the Trade Expansion Act). Mar ‘18 – US announces 25% tariff on imported steel and 10% on imported aluminium imports. EU, Mexico, Canada and Australia exempt. Mar ‘18 – US announces 25% tariffs on US$50bn of Chinese exports; in response to IP theft investigation. Mar ‘18 – China announces $3bn in tariffs on ~120 US products. Apr ’18 – China warns of tariffs on another $50bn in US goods. Apr ’18 – Trump calls for US $100bn in new tariffs, looking into products. May ’18 – Trump again threatens to impose 25% tariffs on $50bn Chinese goods. China agrees to buy more US goods. EU informs WTO of counter measures on US goods. Jun’18 – exemptions on steel and aluminium tariffs expire; tensions heighten between US and China, EU, Canada, Mexico with countermeasures proposed against the US. Trump administration considers 15 levies on additional $100bn in imports and proposes additional announces tariffs on $34bn of Chinese products on July 6, new tariff list on $16bn products.

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Blockchain – Agri application 20

Synthetics case study – History never repeats 21

What kind of farm is this? 22

Nathan Penny Senior Rural Economist Email: nathan.penny@asb.co.nz Linkedin: nathanjpenny