What can we expect in 2017?
By Nick Clark
General Manager Policy
Welcome to a new year. 2016 was a turbulent year to say the least! Globally there was political turbulence, much of it surprising and shocking to the pundits – if not to the public. Partly associated with this turbulence was heightened financial and economic volatility and concerns about the apparent rise of nationalism, populism and protectionism.
In New Zealand the domestic economy seemed to shrug off these worries. Net migration and tourism continued to set records, GDP and employment grew strongly, business confidence was robust, and the Government posted a healthy surplus. However, we also had own political surprise with John Key’s resignation and there was the Hurunui/Kaikoura earthquake which caused great damage and disruption.
2016 is over - and many will be glad to see the back of it - but 2017 should prove to be no less challenging. Donald Trump will be inaugurated as US President (need I say more) and Britain and the EU will begin Brexit negotiation once Article 50 is finally invoked.
There will be elections in some key European countries, like France, Germany and the Netherlands, which will test the strength of Eurosceptic parties. China and Russia will continue to display their recent assertiveness.
At home we will have our own election, which will no doubt be closely fought. The economy is relatively strong and most people think New Zealand is heading in the right direction.
However, inequality, immigration, housing, and law and order will be key battlegrounds which means the election is not a foregone conclusion. The relatively strong fiscal position will likely see plenty of promises to spend more and/or cut taxes.
Economic news was typically fairly quiet over the holiday period but there were a couple of items worth remarking on.
Dairy prices dropped in the year’s first Global Dairy Trade auction, held last week. The GDT Price Index was down 3.9 percent, with whole milk powder, which makes up nearly half the trade by volume, down 7.7 percent. Other commodities were mixed with skim milk powder up 2.3 percent and butter up 0.5 percent. The average winning price was US$3,463 and 22,396 tonnes were sold.
Last week’s 3.9 percent fall followed a 0.5 percent fall in 2016’s last auction held on 20 December. Nevertheless, the GDT Price Index remains 31.9 percent higher than at the same time last year and most economists still expect the season to deliver a payout in excess of $6 per kg milk solids.
The broadly positive picture for dairy was confirmed by ANZ Commodity Price Index which rose 0.7 percent in December. The December rise was the eighth in a row, with it up19 percent for the year.
When converted into NZ Dollars, the NZD Commodity Price Index was up 2.0 percent. This was the fifth month-on-month rise in a row and the fourth monthly gain above 2 percent. During December the NZ Dollar depreciated against the US Dollar and UK Pound but was up against other currencies.
Dairy was the star with prices up 3.9 percent in December, thanks to tight global milk supplies and improved Chinese import demand. However, non-dairy prices fell 1.9 percent, with only three of the 12 non-dairy commodities in the index rose in December.
The falls were centred mainly in the meat and fibre group. The largest fall was a 6.2 percent drop in wool prices, making the 2016/17 season a tough one so far (prices down 26 percent annually). Beef prices also fell 5.5 percent and lamb prices were down 2.4 percent.
These results are consistent with surveys late last showing improved farmer confidence overall but that it was very much two-speed with dairy farmers feeling better about the economy and their own fortunes (albeit off a low base) and with sheep and beef farmers feeling worse. This doesn’t seem likely to have changed as we enter the new year.
Next week we plan to run our next six-monthly Farm Confidence Survey. Federated Farmers members when you get the invitation email please take a few minutes to let us know how things are going and your concerns.