What is the impact of exchange rate on NZ farm-gate prices? – Beef + Lamb NZ

30 September 2015

To highlight the impact of exchange rates on New Zealand (NZ) lamb and cattle prices for producers, Beef + Lamb New Zealand’s New Season Outlook forecasts the farm-gate price for lambs and cattle (all grades) for the 2015-16 season (year ending September 2016), based on three exchange rate scenarios.

The three scenarios are a low New Zealand Dollar (NZD) at US$0.56, mid NZD at US$0.63 and high NZD at US$0.70 – and the associated cross rates against the Great British Pound and the Euro.

At the mid exchange rate of US$0.63, the forecast average lamb price for 2015-16 is 547¢/kg cwt – up 4% year-on-year. Beef + Lamb NZ attribute this projected rise to an expected depreciation of the NZD during 2015-16. Interestingly, if the NZD does not depreciate to the expected extent, and instead averages US$0.70, the farm-gate lamb price would fall 9.9% year-on-year, averaging 474¢/kg cwt.

At the mid exchange rate (US$0.63), the average sheep farm-gate price for 2015-16 is estimated at 309¢/kg cwt – 17% dearer than the previous year.

Following an increase of 30% during 2014-15, NZ cattle prices are expected to continue climbing higher in the year ending September 2016. Although, the rise in prices is likely to be due to a lower NZD, rather than a lift in market prices as what occurred last year.

According to the report, at the mid exchange rate scenario (US$0.63), the annual average cattle price is estimated at 526¢/kg cwt – up 11% year-on-year. If the NZD was to instead hit US$0.70 (the high NZD scenario), the farm-gate cattle price is expected to decline 12% on the previous year. On the other hand, if the NZD depreciated further, to US$0.56 (the low NZD scenario), the farm-gate cattle price is forecast to increase by 15% for 2015-16.

(NB: Livestock prices above are in NZD. Source: Beef + Lamb New Zealand)

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