Economic week

By Nick Clark
19 May, 2017

Dairy prices rose again in this week’s GDT auction.   The GDT Price Index was up 3.2 percent, its fifth straight increase.  Prices were up for all but one of the GDT commodities, with whole milk powder up 1.3 percent and skim milk up 1.0 percent.  The biggest movers were butter (up 11.2 percent) and anhydrous milk fat (up 8.2 percent).  

Overall the average selling price was $US3,313 and 21,236 tonnes were sold.

The GDT is now above its previous recent peak in early December 2016 and is up 61.6 percent on the same time last year.

Higher prices are not just a dairy phenomenon with there being large increases over recent weeks in sheep and cattle prices.  They are well above last year’s levels and their five year averages.  Although wool prices have suffered from lack of Chinese demand it is encouraging to see dairy, sheep and beef prices all on the up at the same time.

As with consumer prices, business prices are on the rise.  Statistics NZ’s Producer Price Indexes showed that in the March quarter output prices rose faster (up 1.4 percent) than input prices (up 0.8 percent).  Output prices were influenced by higher prices for dairy products (resulting in higher output prices for farmers and higher input prices for processors), while higher crude oil prices pushed up the input costs at oil refineries.

In the year to the March 2017 quarter, output prices increased 4.1 percent and input prices increased 4.2 percent.  Compared to March 2016 output prices for dairy cattle farmers were up a whopping 49.2 percent while their input prices were down 1.4 percent which combined represents a massive turnaround in their fortunes (albeit from a low base).  For sheep, beef cattle, and grains farmers output prices were up a more modest 4.7 percent while their input prices were up 2.7 percent.

As part of its suite of business price indexes, Statistics NZ also released its Farm Expenses Price Index (FEPI), measuring movements in the prices of key farm expenses.  Overall, the FEPI was up 0.5 percent in the March quarter, pushed up by higher prices for fuel (up 3.9 percent) and electricity (up 3.0 percent).  On an annual basis farm expenses were up by 0.6 percent.  Fuel was the main upward contributor, jumping 17.0 percent for the year.  On the other hand, fertiliser was down 5.5 percent.

For dairy cattle farmers the FEPI was up 0.5 percent for the quarter but down 1.0 percent for the year.  For sheep, beef cattle, and grains farmers the FEPI was up 0.8 percent for the quarter and up 2.3 percent for the year.

April also saw a pick-up in farm sales. The Real Estate Institute of NZ’s latest Rural Market Statistics showed 473 farm sales in the three months ended April 2017, up 16.2 percent on the same period last year, while 1,815 farms were sold in the year to April 2017, up 5.0 percent on the year to April 2016.  There was a particularly strong increase in dairy farm sales, up 20 percent for the year.

The median price per hectare for all farms sold in the three months to April 2017 was $28,368 down 5.4 percent on the three months ended April 2016 ($30,000 per hectare). However, the REINZ All Farm Price Index rose 5.9 percent in the three months to April 2017 compared to the three months to April.  The difference will be because the Index adjusts for differences in farm size, location and farming type, unlike the median price per hectare, which does not.

Next week is the Budget.  I’ll be going to the Budget Lock-Up and next week’s commentary will feature the Budget and what it means for farmers.

Also closing next week is Federated Farmers’ May Banking Survey.  Federated Farmers members have been invited by email to take the survey and more than 400 have done so to date.  Make sure to take the survey and let us know how things are going. 

Source: Reserve Bank of NZ

Wholesale Interest Rates