ASB Report gives a positive outlook for New Zealand forestry

by | Mar 25, 2024

Forestry is on the rise as meat prices lag behind dairy rebounds, but overall, there is a more positive outlook for the sector, according to the New Zealand Auckland Savings Bank (ASB) Rural Quarterly report.

ASB’s latest Rural Quarterly report contains a more positive outlook for the sector compared with previous quarters, as prices for key commodities have rebounded and forecasts have been nudged upwards.

ASB Economist Nathaniel Keall says the more bullish growth outlook has a lot to do with changing expectations around what monetary policy will do.

“Markets have become more bullish that rates will not need to move as high, and the global economy might manage the fabled ‘soft landing’. Traditionally ‘safe’ assets like government bonds and the US dollar are out of favour, and ‘risk’ assets like equities and commodities, are back in vogue,” Mr Keall said.

Dairy prices have managed a decent rebound of about 22 per cent since their lowest point earlier in the season, but are still around 30 per cent below the peaks they enjoyed the previous year. While a weaker global economy curbed commodity prices in general in 2023, meat consumption looks to have been harder hit than some other staple commodities.

According to the report, the downturn in forestry prices came earlier – and hit harder – than the softening in other commodities, particularly given the concentration of the sector in China.

“With Chinese economic activity projected to slow in 2024 (albeit not as much as previously expected), and the Chinese property market not looking particularly flash, we are expecting modest support from the export market,” Mr Keall said.

“However, we are anticipating a slightly more supportive environment domestically. With OCR (optical character recognition) cuts likely in the second half of the year, we expect house prices to gain ground over the course of the year somewhere in the region of seven to eight per cent. That is a much slower upswing than during the last house price cycle, but should bolster construction activity and ultimately domestic demand for New Zealand forestry products to some degree.”

ASB General Manager of Rural Banking Aidan Gent said the bank’s farmers and growers have shown great resilience, and ASB is committed to backing food and fibre.

“The combination of fluctuating commodity prices, on-farm inflation, Official Cash Rate rises and some extreme weather events have tested the resilience of our farmers and growers. The food and fibre sector, as always, has shown great resilience. We have been proud to both continue to support our existing customers through these challenging times, as well as welcome new customers to ASB.”

“We are excited about the future of food and fibre in New Zealand and are committed to providing support to the sector to enable it to continue to be productive and profitable. There are always challenges, but we believe from challenge comes opportunity and we are backing the sector all the way,” Mr Gent concluded.