New Zealand agribusiness outlook 2025: All aces in agriculture for 2025?

The last several years of market dynamics have dealt New Zealand food producers a mixed hand, seeing producers shuffling through some challenging times. From record highs achieved for many commodities in 2022, to significant lows in 2023 and 2024. The 2025 deck will contain a motley mix of cards for New Zealand agricultural producers, providing a relatively strong hand for the year – with some aces and jokers for good measure.

Stacking the deck for 2025 are several potential draws:

1. The Trump card. With President Trump reintroduced to the White House, this card promises to keep markets volatile this year. The threatened trade duties/tariffs, if imposed, will likely weigh on global trade and economic growth and possibly evoke retaliation, providing more uncertain export settings in an increasingly fragmented trading environment. For New Zealand, two main risks lie ahead: a stronger US dollar and its implications for related purchasing power; and market access consequences. Agri-commodities might not be immune to these risks, both positively and negatively, with the US being a key market for beef and the second-largest market overall for the primary sector, behind China.
   
   
2. The joker: Geopolitical supply chain war. The war in the Middle East, including the re-routing of ships away from the Red Sea piracy attacks, is currently on pause but might not fade. The war in Ukraine can still impact grain markets (and therefore feed prices) if Russia progresses further west and limits Ukraine’s grain exports. Increased defence spending by governments is on the cards, and thus 2025 is likely to be characterised by increased trade tensions, protectionism, conflict, sanctions, and national security concerns. This is the year that economic policy and economic statecraft really entwine toward a Grand Macro Strategy, providing the setting for a geopolitical supply chain war where our usual export markets might not necessarily remain neutral playing fields. This will require New Zealand exporters, executive leadership teams, and governance boards to think even bigger-picture and more long-term, beginning with the new end in mind for our key markets.
   
   
3. The wild card: Re-emerging input cost pressure. Input cost pressure remains a concern in light of geopolitical tensions and global trade fragmentation. Global farm input prices, both for fertilisers and for plant protection products, are forecast to move sideways to slightly higher. Global urea and phosphate prices in New Zealand dollar terms have already inched upward from 2024 lows. With New Zealand importing most fertiliser, the weaker New Zealand dollar was a key driver in this move. While we don’t expect very big price swings for 2025, we do see more upside than downside price risk this year. Furthermore, while our global crude oil price outlook calls for Brent to drop below USD 70/bbl due to an oversupply, the early 2025 price rally is heavily driven by fear of escalation in the Middle East. Coupled with a weaker New Zealand dollar, this also poses import cost pressure for refined products.
   
   
4. The ace: Optimistic farmgate price settings. Trump and wild cards aside, supply and demand fundamentals are expected to underpin more optimistic farmgate pricing for many of our key commodities in 2025. A global contraction in beef numbers alongside strong anticipated demand from the US is likely to build upon an already strong pricing base for this year and beyond. Dairy producers are looking at balanced market dynamics, supporting record nominal farmgate pricing for the 2024/25 season. Sheepmeat, the laggard of the bunch, has kicked off 2025 with lamb prices nearly NZD 2/kg higher than last year. Australian sheep numbers are finally dropping, and good demand from the UK, EU, and US has underpinned recent returns. If China picks up some demand for mutton, we could be looking at a full house for most farmgate prices.
   
   
5. The queen of hearts: Interest rates. Movements in the Reserve Bank of New Zealand (RBNZ) Official Cash Rate (OCR) will be crucial in determining the strength of the 2025 hand. As we have seen in recent years, interest rate movements have had far-reaching consequences for inflation and economic growth. Just as the queen of hearts can change the game in a heartbeat, a sudden interest rate hike can turn the financial deck upside down. RaboResearch forecasts that the RBNZ will have the comfort they need to cut the OCR by another 0.50 percentage points in February 2025 and to ultimately take the rate down to 3.25% by July this year.

All in all, a royal flush of opportunities ahead for 2025, if we play our cards right.