Domestic price of feed

IBISWorld expects the domestic price of feed to increase by 0.6% during 2024-25, to 146.8 index points. New Zealand imports a significant share of its feed. Hence, the domestic price of feed is influenced by the worldwide supply and prices of Palm Kernel Extract (PKE), wheat and coarse grains. Although world prices of wheat are falling, along with domestic and Australian coarse grain prices, the world price of palm kernel oil has skyrocketed due to adverse weather conditions and labour shortages in key growing locations like Indonesia, Malaysia and Thailand. Furthermore, the New Zealand dollar has depreciated over the previous two years and the lagged effect of this is also inflationary.

PKE prices spiked at the end of 2019-20 due to production delays in Indonesia and Malaysia. The price continued to surge over the two years through 2021-22, due to labour supply disruptions caused by the COVID-19 pandemic as well as adverse weather conditions. Palm kernel oil prices plunged over the two years through 2023-24, on the back of improving supply conditions. However, world wheat and grain prices skyrocketed as a result of the war in Ukraine 2021-22 and 2022-23. Despite a drop in 2023-24, they remained substanitally above pre-war levels. Rising transport costs due to surging oil prices and a weakening New Zealand dollar placed further upward pressure on imported feed in New Zealand. Additionally, weather events like Cyclone Gabrielle have resulted in loss of feed, elevating domestic feed prices as supply shortages are exacerbated.

Livestock farmers purchase feed for their livestock when pasture crop qualities are constrained. Growing conditions for pasture often dictate how much feed is purchased. As a result, the domestic price of feed is greatly influenced by New Zealand weather conditions. Drought conditions lead to poorer pastures, boosting demand for feed and sending prices higher. PKE is predominately used as dairy cow feed supplement when pasture supplies are not sufficient. Other supplements include grass silage, corn silage, soy derivatives, barley, corn, and wheat grain. Improved growing conditions bolstered domestic wheat and grain harvests, placing downward pressure on domestic feed prices in 2023-24.

Demand for feed is also influenced by the number of livestock in New Zealand. When turn-off rates increase, demand for feed tends to fall, dampening the domestic price of feed. For example, sheep farms tend to hold their livestock for longer when the domestic price of wool is high in a bid to increase wool production. This leads to a rise in their feed requirements, especially in years of insufficient or ill-timed rainfall, when pasture quality declines. Local weather conditions have been volatile over the past five years. Annual rainfall levels fell in 2020-21, but rose in 2021-22 and 2022-23. However, large parts of the South Island are now experiencing drought.

Agricultural and production conditions have contributed to rising global supply and domestic demand of feed over the period, directly affecting the price of feed. Increasing international trade costs have further contributed to price hikes. Overall, IBISWorld forecasts that the domestic price of feed will increase at a compound annual rate of 5.8% over the five years through 2024-25.