Prices fall at the latest Global Dairy Trade auction, could climate change affect future farm financing, and Primary Industry stars shine at national awards. Welcome to Proud Country's Early Bird - The top things you need to know that impact rural New Zealand delivered to you by 5am, because who doesn’t need better chat beyond the weather! Prices fall at the latest Global Dairy Trade auction Dairy prices experienced their most significant decline since August last year, with nearly all major products seeing a decrease in the latest Global Dairy Trade (GDT) auction which fell by 6.9%. The primary buyer of whole milk powder was Southeast Asia/Oceania, purchasing 57% of the product, while North Asia accounted for just 30%. Several bearish factors influenced the auction, including greater product availability, perceived market uncertainty, and anticipated price drops in the SGX-NZX Derivatives market for Fonterra’s main reference products. Whole milk powder prices, which heavily influence Fonterra’s milk price forecasts, dropped by 4.3%, skim milk powder fell by 6.1%, nearly reversing gains seen since May. Anhydrous milk fat, essential for ice cream and chocolate production, decreased by 10.7% after a strong performance over the past year. Butter prices plunged by 10.2%, while cheddar, which is not included in Fonterra’s milk price forecast calculations, declined by 6.9%. Fonterra’s opening forecast for the farmgate milk price for the 2024/25 season is between $7.25 and $8.75 per kg of milksolids, with a midpoint of $8.00 per kg. In its latest update, Fonterra reported that New Zealand collections for the season ending May 31 were 0.6% lower than the previous season. Could climate affect future farm financing? Concerns are mounting that banks might use recent climate stress test results to justify tightening their lending policies for rural borrowers. Earlier this year, the Reserve Bank published results of climate stress testing on the loan portfolios of the five largest banks, extending to 2050. Under extreme climate scenarios, rural loans were projected to account for 24% of banks’ climate-related losses, despite comprising only 9% of all loans from 2031 to 2050. In contrast, residential mortgages, which made up 60% of total loans, were expected to account for 27% of the losses. Scott Wishart, managing director of rural debt advisory firm NZAB, voiced concerns that some banks might prematurely act on these projected risks, adopting tougher lending policies now. The Reserve Bank’s forecast indicated that risk weights for agricultural loans could rise from 80% in 2030 to 120% by 2050. Meanwhile, risk weights for business loans were predicted to increase more modestly from 60% to 80%. A former director of an Australian-owned bank highlighted that bank shareholders would demand compensation if required to hold more capital for agricultural loans. This would likely result in higher loan costs for farmers as banks seek to maintain profitability. Federated Farmers national board member Richard McIntyre warned that restricting credit or raising interest rates could deter farmers from making necessary investments to enhance their operations' resilience. Farmers might shy away from borrowing for projects like irrigation or water storage if they fear it would negatively impact their financial standing with banks. Even with concessionary interest rates or dedicated climate resilience loans, McIntyre doubted many farmers would take advantage due to strained relations with lenders. McIntyre also noted that many farmers feel banks have become more negative and demanding despite improvements in their financial positions. He stressed that any assistance from banks must not put farmers at greater financial risk. He expressed hope that the upcoming parliamentary inquiry into rural banking would explore ways banks can incentivize farmers to invest in climate resilience. North America holds as our biggest red meat market North America remained New Zealand's largest red meat market in May, with beef and sheepmeat exports showing notable year-on-year increases in nearly all major markets, according to the Meat Industry Association (MIA). New Zealand exported red meat products worth $1.1 billion, marking a 3% increase from May 2023, driven primarily by beef exports which saw a 5% rise in volume and a 9% increase in value. The United States emerged as a significant market, with exports totaling $358 million, a 28% increase, making it a record month for the value of beef exports to the US. Japan and the UK also showed strong growth, with exports rising 96% to $72 million and 51% to $62 million, respectively. Conversely, China, the second largest market, saw a decline with exports valued at $232 million, down 42% from last May. Beef exports were worth $524 million, while sheepmeat exports dropped 1% from last May, with value down 5% to $387 million. Additionally, fifth quarter exports increased by 6% to $198 ...
