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Jamie Mackay: The Country host on the market volatility potentially impacting red meat sector · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
• 0:13
  Speaker 1: and our wide range of podcasts now on iHeartRadio. The
• 0:16
  Speaker 1: host of the country, Jamie Mackay. Hello, Jamie.
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  Speaker 2: G'day, Heather.
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  Speaker 1: What's going on with the red meat?
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  Speaker 2: Well, earlier this week, Beef and Lamb New Zealand came
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  Speaker 2: out with its new season outlook for the new season,
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  Speaker 2: which we've just started. In fact, the farmers are out
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  Speaker 2: there lambing and calving as we speak. So this is
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  Speaker 2: for the 2020. 26, 27 season. What they're saying is
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  Speaker 2: they can expect to see continued strong meat or red
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  Speaker 2: meat returns, but the margins are likely to tighten. And
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  Speaker 2: there's a couple of reasons, or there are some factors
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  Speaker 2: coming into play here. The New Zealand dollar, and I'll
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  Speaker 2: talk about that a wee bit later, is likely to
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  Speaker 2: strengthen against the US dollar. And we've also got, obviously,
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  Speaker 2: the risk of a very dry El Nino spring, summer
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  Speaker 2: coming up. Now, Average farm gate prices are expected, as
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  Speaker 2: I said, to soften slightly, but these are off historical highs.
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  Speaker 2: Lamb prices expected to decrease 8%. Beef prices down 4.5%.
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  Speaker 2: And on top of that, farm expenditure is expected to
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  Speaker 2: be up 4.2%. So your average farmer, your average sheep
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  Speaker 2: and beef farmer out there, Heather, can expect a farm
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  Speaker 2: profit before tax to average $ 267, 000 And while that sounds
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  Speaker 2: a lot, it is down 20% on the season we've
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  Speaker 2: just finished, which was a record average of $ 335, 000. Now,
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  Speaker 2: just before you go, $ 267, 000 is a hell of a
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  Speaker 2: lot of money. Remember, from that, the farmer has to
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  Speaker 2: pay tax, depreciation, own drawings so they can live, and
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  Speaker 2: also any capital purchases. And it's very easy to spend,
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  Speaker 2: for instance, either $ 267, 000 on the tractor. So look, things
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  Speaker 2: are good, but they're just not going to be quite
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  Speaker 2: as good as they were last season.
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  Speaker 1: Also, Jamie, if you think about the value of the
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  Speaker 1: land that they're often sitting on, that profit's actually quite small,
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  Speaker 1: isn't it, when you think about it like that?
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  Speaker 2: Oh yeah, look, for sheep and beef farmers especially, the
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  Speaker 2: likes of dairy, kiwifruit especially, you're going to get a
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  Speaker 2: better return on your equity. But yeah, look, historically, Heather,
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  Speaker 2: sheep farmers might have got 2% return on investment if
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  Speaker 2: you were really being hard-assed about it. You would say, well,
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  Speaker 2: I'll just sell the farm and put my money in
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  Speaker 2: the bank at 5% or 6%. And I'm talking historic
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  Speaker 2: averages there. So no, it's not a fantastic return. I
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  Speaker 2: guess you have capital gain, but a lot of that's
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  Speaker 2: gone out of farming in recent years as well. So
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  Speaker 2: for many of them, it's a lifestyle. But to be fair,
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  Speaker 2: the sheep farmers have had a really good season. They're
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  Speaker 2: looking towards another positive one. So they need to take it.
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  Speaker 2: They've got a lot of catching up to do. Yeah,
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  Speaker 2: too right.
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  Speaker 1: And what does Rabobank have to say?
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  Speaker 2: Well, Rabobank, this was another one from earlier in the
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  Speaker 2: week I didn't get to on Tuesday evening. And so
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  Speaker 2: they come out with an agribusiness monthly report, obviously every month.
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  Speaker 2: So September says... You know, you can split it in two.
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  Speaker 2: You can look at the commodity outlooks, dairy, beef, sheep, meat,
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  Speaker 2: down a bit, all of them, but still looking really positive.
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  Speaker 2: The problem for farmers and the problem for business people
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  Speaker 2: is the input side, the cost side of the ledger.
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  Speaker 2: Farm inputs, obviously, with fertilizer and fuel, with the Middle
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  Speaker 2: East escalation, what is happening? Brent crude's at $ 96 a
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  Speaker 2: barrel at the moment. So that's something that's really hitting
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  Speaker 2: farmers quite hard, especially the fertilizer. And the other one
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  Speaker 2: is interest rates and foreign exchange. So I talked about
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  Speaker 2: a strengthening dollar. We're at about 59 US cents. Last
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  Speaker 2: time I had a look, Rabobank saying we can expect
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  Speaker 2: that to go to 61 cents in the next 12 months.
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  Speaker 2: We can still live with that, but it takes a
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  Speaker 2: bit of the edge off. And the other one is obviously,
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  Speaker 2: which affects all of us, interest rates, Rabobank, the chief economist,
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  Speaker 2: being picked and saying, we can expect another couple of
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  Speaker 2: increases in the official cash rate. And they're reckoning it's
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  Speaker 2: going to be at 3.25% by Q1 next year. Yeah, interesting.
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  Speaker 1: Hey, thank you, Jamie. Always good to talk to you.
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  Speaker 1: We'll talk to you again next week as Jamie Mackay,
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  Speaker 1: host of The Country. For more from Newstalk ZB, listen live,
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  Speaker 1: on air or online. And keep our shows with you
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  Speaker 1: wherever you go with our podcasts on iHeartRadio.