Economic Week - December 8

by Nick Clark


Lamb Crop
Spring saw a record lambing percentage according to Beef+Lamb NZ’s Lamb Crop 2017.
Nationwide, 23.7 million lambs were tailed in spring 2017, up 1.9% on spring 2016.   The North Island had a 4.9% increase in lambs tailed but the South Island dropped 1.0%.
The overall lambing percentage was 127.2%, up 4.4 points on 2016.  The North Island’s percentage was 128.0% (up 8.6 points) and the South Island’s was 126.4% (up 0.3 points).
Beef+Lamb NZ expects the 2017/18 season lamb slaughter to be similar to last season’s 19.3 million. This is due to more replacement lambs being kept to maintain flock numbers.
Following on from last week’s National Dairy Statistics, which showed more milk being produced per cow, this is another example of good productivity gains by New Zealand farmers.  Great stuff.

Commodity Prices
World prices for New Zealand export commodities fell in November but a lower exchange rate boosted prices when converted into local currency.
ANZ’s Commodity Price Index slipped 0.9% in November compared to October.  Dairy led the downward push, with whole milk powder and skim milk powder both slipping around 6% for the month.  Meat prices held up better and horticulture prices lifted.
World prices have slipped in four of the five months since June, with the index down 25% over that period, to be up only 6% year-on-year.
Thankfully a weaker exchange rate has more than helped offset these falls.  The NZ Dollar fell 2.1% in November and this meant the NZ Dollar Commodity Price Index increased 1.5% in November and it is now up 12% year-on-year.

GDT Auction
Growing awareness of the impact of dry weather conditions impacting on future milk production is likely to have been a factor behind an increase in this week’s Global Dairy Trade auction. 


The GDT Price Index edged up 0.4%, breaking a run of declines.  Whole milk powder increased 1.7% and skim milk powder was up 4.7% but butter slumped be down 24% from its peak in mid-September.  The average selling price was US$3,091 and 29,514 tonnes of product were sold.
The GDT Price Index has dropped in eight out of twelve auctions since the start of June and it is down 11.2% cumulatively. The GDT Price Index is also 10.1% lower than at the time last year. 

Fonterra Payout
Fonterra this week reduced its forecast milk price for the season to $6.40 per kg milk solids, down 35 cents.  Fonterra blamed volatile commodity prices for the reduction and certainly the recent run of falls on the GDT meant it was not unexpected.

Fonterra also updated its full season New Zealand milk collection, cutting it by 1% to 1,525 million kgMS – the same volume as last season. ‘Challenging weather conditions’ were to blame.

Rural Confidence
Rabobank’s latest quarterly Rural Confidence Survey followed the trend of other business confidence surveys, revealing a sharp drop in confidence among farmers.
Overall, a net 13% of respondents expect the rural economy to improve over the coming year, down 25 points on the August and down 41 points on June when confidence was at a record high.  Dairy and horticulture were the sectors which had the biggest drops compared to August with sheep and beef relatively stable.  All sectors now have fairly similar levels of confidence.
Rabobank attributes the slump in confidence to a reaction to the change on government.  80% of those who thought the rural economy will worsen cited government policies as the key reason.

Terms of Trade
New Zealand’s terms-of-trade hit a record high in the September quarter, according to Statistics NZ’s quarterly Overseas Trade Indexes.
The terms of trade for goods was up 0.7% during the quarter.  This was thanks to export prices (down 1.9%) falling by less than import prices (down 2.6%).  Comparing September 2017 to September 2016 the terms-of-trade was up 12.3%, with export prices up 12.5% and import prices up 0.2%.
The terms-of-trade has pushed past the previous high set in June 1973 prior to the first oil crisis.  Despite some ups and downs it has been on an upward trajectory since around 2000.
The terms -of-trade is a measure of the purchasing power of New Zealand’s exports abroad and it is an indicator of the state of the overall economy. 

Banking Survey
This week Federated Farmers released the results of its latest six-monthly Banking Survey, showing farmer satisfaction with banks to be strong and stable The survey, undertaken in November by Research First, had the following key results:

  • 81% of farmers are satisfied or very satisfied with their banks.
  • 75% of farmers think communication with their bank has been good or excellent.
  • 8% of farmers feel they have come under undue pressure over the past six months.
  • The average mortgage interest rate is 5.2%.
  • The average overdraft interest rate is 7.5%.
  • 61% of farmers have detailed and up-to-date budgets for the current season, while 20% also have budgets for next season

The next Banking Survey will be undertaken in May 2018.  Federated Farmers thanks the 480 farmers who took part.

Monetary Policy Musings
In a speech this week Acting Reserve Bank Governor Grant Spencer talked about the drivers of persistently low inflation and the impact it’s had on monetary policy.  In response the Reserve Bank is having to be more flexible and patient in pursuing its goals of price stability.
The speech was interestingly-timed given the new government’s wish to reform the Reserve Bank Act to add a goal to maximise employment.   Grant Spencer observed that in this climate the Reserve Bank’s flexible approach means more weight has already been attached to output, employment and financial stability. However, before pronouncing the death of inflation and that we need not worry about it anymore, he said this approach can only be sustained if monetary policy’s long term price stability credentials are maintained

Exchange Rates

NZ Dollar versus

This Week (7/12/17)

Last Week (30/11/17)

Last Month (7/11/17)

Last Year (7/12/16)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renmimbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates


This Week (7/12/17)

Last Week (30/11/17)

Last Month (7/11/17)

Last Year (7/12/16)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ