Economic week

September 8, 2017
by Nick Clark

Dairy prices started the month of September flat overall, with the Global Dairy Trade auction up 0.3% this week.  Five of the eight commodities traded increased in price, but the two biggest by volume fell – whole milk powder down 1.6% and skim milk powder down 1.2%.

Overall, the average selling price was $US3,323 and 33,501 tonnes were sold.

The GDT Price Index was up 18.7% compared to the same time last year but although it has had up and down patches it is virtually unchanged since the start of 2017.

Record butter prices and high prices for meat helped lift the merchandise terms-of-trade by 1.5% in the June 2017 quarter, according to Statistics NZ’s Overseas Trade Indexes.  This took the terms-of-trade index to 1437, just one point below June 1973’s record high of 1438.

The rise in the terms-of-trade reflected a 2.4% rise in export prices and a 0.9% rise in import prices.  Meat export prices were up 9.2% and dairy export prices up 3.9%.

The 1.5% rise in terms-of-trade in the June quarter followed a 3.9% increase in the March 2017 quarter.  It was up 10.3% on June 2016.

There was also a positive story on export volumes.  Comparing the June quarter with the March quarter, export volumes were up 6.8% and import volumes were up 2.3%. 

The question of whether the terms-of-trade hits a record high in the current quarter will depend on movements in export and import prices in July, August, and September.  It might be a tough ask as export commodity prices have edged back since June according to ANZ’s monthly Commodity Price Index.  

In July the World Price Index slipped 0.8% compared to June and this dose was repeated in August with another 0.8% decline compared to July. However, world prices were still up 16.3% on August 2016.  

Meat prices fell 3.2% month-on-month, mainly due to lower beef prices. Venison and lamb prices held up better and wool prices had a welcome increase.  Dairy prices slipped 0.4% month-on-month, with whole milk powder up but skim milk powder down.

A lower exchange rate in August resulted in the NZ Dollar Index edging up 0.2% month-on-month, following a 2.1% fall in July.  It was up 15.8% on August 2016.

Farmers are keenly interested in their rates bills and it will be no surprise that total rates revenue for New Zealand’s 78 local authorities increased over the past year by significantly more than inflation.  

Statistics NZ’s quarterly Local Authority Statistics showed rates revenue to be up 4.6% for the year ended June 2017 to $5.6 billion.  Total operating spending pushed past $10 billion to $10.1 billion, up 7.9% on the previous year.  With total operating revenue of $9.5 billion, the operating deficit for the year increased to $550 million.

The statistics continue to show rates recovering the majority of councils’ revenue, 58.2% for the year ended June 2017.  This is around the historical average.

Source: Reserve Bank of NZ

Wholesale Interest Rates

Source: Reserve Bank of NZ