Economic Week - January 10

by Nick Clark

Happy New Year and welcome back.  Here is the first weekly economic update for 2020.

Commodity prices down in December…
Commodity prices ended 2019 by falling 2.8% in December although they were still 9.4% higher than in December 2018, according to ANZ’s monthly Commodity Price Index.
Dairy prices increased by 0.2% in the month, to finish the year 21.3% higher than a year ago. Meat and fibre prices fell 6.1% in the month but despite falling in December, beef prices were still up 29.6% for the year while lamb prices were still up 13.2% for the year.  Wool prices were up 0.5% for the month but were down 6% for the year.  Horticulture prices slumped 12.4% for the month while forestry prices slipped 0.4%.
The NZ Dollar appreciated in December, so this resulted in the NZ Dollar Index dropping 5.5% for the month.  However, on an annual basis the NZ Dollar Index remains 12.9% higher than in December 2018.

…But have had a great 2000s
December’s drop shouldn’t obscure a stellar run for commodities since 2000.  The ANZ Commodity Price Index fell for most of the 1980s and 1990s but over the past two decades since the turn of the millennium it increased by 75.6% in NZ Dollar terms.  Meat, skins and wool prices were up 108.1%, dairy prices up 74.6%, horticulture prices up 22.1%, forestry prices up 9.0%, and seafood prices up 25.8%.  In comparison the Consumer Price Index has increased by 52.2% since December 1999.
There continues to be much talk about the need for New Zealand to move away from commodities and to pursue value rather than volume.  Yet the record of New Zealand’s agricultural commodities show they continue to provide great value.  Partly this reflects global market forces, especially the rise of China, but no one should forget the great efforts made both by New Zealand farmers to use knowledge and technology to improve their productivity and by our processor exporters to invest to develop new and better products and markets, all of which add considerable value to our exports and to our economy.  As any farmer will know none of this happened by accident.

Ag debt edges up
Agricultural sector debt increased slightly in November 2019 to $63.5 billion, according to the Reserve Bank’s monthly Sector Lending Statistics.
The $89 million monthly increase in ag debt came after three successive months of falls from July to October.  Despite this increase the annual rate of growth continued to slip, from 1.9% for the year to October 2019 to 1.4% for the year to November 2019.  The annual rate of growth had been as high as 4.0% as recently as the year to May 2019 so the screws have certainly been turned.
In comparison, housing debt continues to grow solidly, up 6.8% for the year to November 2019, while business debt was also up 6.1%.  Personal consumer debt though declined 0.3%.

Dairy farm sales slump
There were 282 farm sales in the three months to November 2019, down 16.1% on the same three-month period in 2018, according to the Real Estate Institute of New Zealand’s (REINZ) Rural Market Statistics.
1,295 farms were sold in the year to November 2019, 12.8% fewer than were sold in the year to November 2018.  There were 44.4% less dairy farms sold, 1.6% less grazing farms, 23.4% less finishing farms, and the same number of arable farms sold over the year.
The median price per hectare for all farms sold in the three months to November 2019 was $25,190, down 17.2% on the same three-month period in 2018.
The REINZ All Farm Price Index fell 1.4% compared to the three-month period in 2018. The REINZ All Farm Price Index adjusts for differences in farm size, location and farming type, unlike the median price per hectare.
REINZ noted that dairy farm sales volumes were down 83% on 2017’s levels, despite “improving forecasts in payout for the dairy industry, an exceptionally kind winter, and a benevolent spring in most dairy regions”.  It cited three main reasons for the slump:

  • The ‘inexorable advances’ in compliance regulations and costs;
  • The availability and quality of labour, which it describes as an ‘Achilles heel’ for the dairy industry; and
  • Tighter bank credit and moved by Australian-owned banks to ‘dramatically reduce their exposure to the dairy industry’.It sees this as the most significant reason.

Lower lambing percentage
On average, sheep and beef farmers achieved a lower lambing percentage in spring 2019 than in 2018, according to Beef + Lamb New Zealand’s (B+LNZ) Lamb Crop 2019 report.
B+LNZ’s Economic Service estimates the number of lambs tailed in spring 2019 decreased by 2.4% or 552,000 head on the previous spring to 22.7 million head. Most of the decline occurred in the South Island.
The overall, nationwide lambing percentage was 127.1%, 1.5 percentage points lower than in spring 2018.  There was considerable regional variation, with Otago having the steepest decline.
The tonnage of lamb produced this season is expected to decrease 4.4% due to a combination of fewer lambs and a slightly lower average carcase weight.  Hopefully good export prices will continue so lessening the impact on sheep and beef farm incomes.

Farm Confidence Survey – have your say
The REINZ farm sales data and B+LNZ’s Lamb Crop report both remarked upon low farmer morale in response to proposed government policies and tighter bank lending conditions.  This week Federated Farmers’ own six monthly Farm Confidence Survey opened for responses. 
Federated Farmers members will have received an email invitation on Monday to participate so make sure to have your say and put yourself into the draw for an Air New Zealand Mystery Break.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 9 January) show most of the North Island dryer than usual, with Northland, Auckland and Waikato particularly so.  Conditions in the South Island are more typical but Waimate, South Otago and Southland are significantly wetter than usual.

Exchange Rates

Over the course of the week the NZ Dollar was down slightly against the Trade Weighted Index and it was either down or unchanged against all our major trading partners except the Australian Dollar where it was stronger.



NZ Dollar versus

This Week


Last Week (3/1/20)

Last Month (9/12/19)

Last Year (9/1/19)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates

Over the course of the week the 90 Day Bank Bill interest rate was down 6 basis points and the rate for 10 Year Government Bonds was down 13 basis points.  The OCR is next reviewed on 12 February.



This Week


Last Week (3/1/20)

Last Month (9/12/19)

Last Year (9/1/19)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ