Economic week

July 7, 2017
By Nick Clark

June saw another healthy increase for the ANZ Commodity Price Index.  World prices for New Zealand’s basket of export commodities lifted 2.1 percent in June compared to May.  This took world prices to a level 25 percent higher than they were in June 2016.   

Dairy prices rose 2.9 percent for the month (and 49 percent for the year) but it was a mixed picture for individual products.  Butter, cheese and skim milk powder posted increases while whole milk powder and casein were both down.  

Meat prices were up 2.8 percent for the month, with lamb prices up 4.7 percent and beef prices up 1.7 percent.  Skin prices were also up 3.5 percent but wool prices were down 0.7 percent.

The NZ Dollar appreciated strongly in June, more than offsetting the gain in world prices.  As a result, ANZ’s NZD index slipped 1.6 percent for the month but it is still 20 percent higher than June 2016.  

Dairy prices were down ever so slightly in this week’s Global Dairy Trade auction.  The GDT Price Index was down 0.4 percent.  Six of the eight commodities dropped in price but whole milk powder, which comprises half the volume, increased 2.6 percent.

Overall, the average selling price was $US3,303 and 28,574 tonnes were sold.

Despite this auction’s fall, which followed another two weeks ago, the GDT Price Index remains 55.9 percent higher than the same time last year.  It was from around this time last year that dairy prices began their strong recovery.

The Reserve Bank’s monthly Sector Lending Statistics showed that agriculture debt increased by $286 million in the month of May to reach $59.5 billion.  May is a month when agricultural debt often rises substantially and this year’s May increase was the smallest since 2011.  

The annual increase in agricultural debt slowed further to 2.2 percent, well down from its 9.3 percent peak in September 2015 and its slowest rate since April 2014.  The equivalent annual growth rates for other sectors’ debt were housing up 8.0 percent, personal consumer up 5.6 percent, and business up 7.2 percent.

The results of another business confidence survey released this week showed business confidence remaining steady in the June quarter. The NZIER’s highly respected Quarterly Survey of Business Opinion recorded a net 18 percent of businesses expecting better economic conditions over the coming months.  However, there was a softening in firms’ predictions about demand, especially in the building industry.  

Although agriculture is not measured in the survey, the impact from an improved outlook for farming was likely to be a reason why regions like Waikato, Bay of Plenty, Gisborne and Southland had strong levels of business confidence.

Federated Farmers’ new-season Farm Confidence Survey is now in the field and will close on Monday.   Thank you to the hundreds of respondents so far.  

Source: Reserve Bank of NZ