A weak NZ dollar (NZD) is a farmer’s friend because it allows exporters to present our products at a competitive price to overseas buyers without cutting into export returns in NZ currency. And if a weak NZD isn’t an option, then the next best thing is a steady, predictable NZD.
The AgriHQ lamb rack indicator is the perfect illustration of how changeable the NZD has been lately. A failing US restaurant sector and very limited sales of lamb racks has meant that this indicator has been stuck at US$6.50/lb since early July. And yet, weekly changes to the NZD have meant that the export returns for lamb racks have changed by up to 53c/kg over a single week.
With the NZD/USD exchange rate strengthening and easing in response to global drama induced by covid-19, the NZ lamb rack prices have been oscillating between $21.20/kg and $21.90/kg with no consistent trend.
We should note, however, that the NZD would have to be in a complete tailspin to get lamb rack returns back up to the NZ$37.00/kg level enjoyed last season. Perhaps, it is best not to rule that out given the looming recession.
As I write this, the NZD is currently posted at 0.66 USD, which is US3 cents stronger than the same time last year. The NZD appears to have been trading within a tight range over the past few days, but it is only one presidential tweet or vaccine announcement away from jumping back up to 0.67 or down to 0.64, which makes it a moving target for exporters. Particularly those exporters selling manufacturing beef in the US market where prices in USD terms are subject to their own weekly volatility. It’s also not that easy for exporters trying to compete against the flopping Brazilian currency to gain the attention of Chinese beef buyers who typically trade in US currency.
If we look to the other export currencies, we can see that there is a bit of movement in the NZ exchange rate with the British pound and the Euro as the markets react to a second wave of covid-19 restrictions.
Gazing into the crystal ball, things are looking changeable for a while. On one hand, we have the World Health Organisation indicating that there could be a covid-19 vaccine by the end of the year. That would provide a quick exit from the covid-19 mirror maze that we find ourselves trapped in.
But on the other hand, we have a NZ general election in a few weeks, a US presidential election in November and a few more months of squabbling over the potential EU/UK trade deal before the end of the Brexit transition period on December 31. All of these events will induce currency wobbles, which make it harder for exporters and meat processors to lock in profits.