Economic Week - June 7

by Nick Clark


Commodity prices steady

The ANZ World Commodity Price Index was stable in May, following a 2.6% rise in April. The World Price Index is now 0.7% stronger than a year ago.
Dairy prices increased 0.5% for the month while the meat and fibre index also edged up 0.4%.  Horticulture and forestry prices both fell though.
A weaker NZ Dollar pushed the NZD index lifted 2.3% for the month.  This resulted in the NZ Dollar Index being 5.7% higher than a year ago. Good news for farmgate returns.

Export and import prices fall

Prices for both exports and imports fell in the March 2019 quarter according to Statistics NZ’s Overseas Trade Indexes.
Goods export prices fell 2.6% for the quarter.  Dairy prices were down 7.5%, meat prices down 0.6% and wool prices down 7.0%.  Import prices fell by 3.5% mainly thanks to a 20.3% drop in petroleum prices.
The net result was a 1.0% increase in the terms-of-trade.  The terms-of-trade refers to the amount of imports that can be bought from a given amount of exports.
On the volumes side, goods export volumes rose 5.0%.  Dairy volumes were up 19.0% to a new record high, but meat volumes were down 3.4% and wool volumes were down 19.6%.  Import volumes rose 1.2%.
Lower dairy export prices in the March quarter might seem odd given the increases in the GDT during the quarter.  There is a lag between auction prices and the time dairy products are actually exported so the fall in dairy export prices will likely reflect the falls in the GDT from May to November last year.  Expect dairy export prices to rise over the next couple quarters.

GDT down

The Global Dairy Trade fell in its first auction for the new dairy season, with the GDT Price Index was down 3.4%.  This followed a 1.2% drop in last auction for the past season, which had broken an almost six month run of gains.
Most commodities fell, including the biggest by volume, whole milk powder (down 1.5%).  There were also losses for skim milk powder (down 4.0%), anhydrous milk fat (down 5.7%), butter (down 10.3%), cheddar (down 14.0%), and butter milk powder (down 10.1%).  The smallest commodities by volume, lactose (up 0.4%) and rennet casein (up 4.2%), were the only commodities to post rises.
The average selling price was US$3,423 and 19,874 tonnes of product were sold.
The GDT is down 1.3% compared to the same time last year.

Ag debt climbs

Agricultural debt rose $137 million in the month of April to reach $63.9 billion, according to the Reserve Bank’s monthly Sector Credit Statistics.  On an annual basis agricultural debt was up $2.2 billion (3.6%) compared to April 2018.
The annual rate of growth in housing debt (up 6.2%) and business debt (up 6.1%) exceeded that of agricultural debt but personal consumer debt (up 1.7%) lagged behind.

Banking Survey

In related news, the results are out for our May 2019 Banking Survey.  It shows farmer satisfaction with their banks slipping, although still at relatively strong levels.
70.7% consider their relationship with their bank to be very good or good, down 3.0 points on November 2018 and 16.2% feel that they have come under undue pressure from their bank, up 4.6 points.  Average mortgage and overdraft interest rates were both down slightly compared to six months ago.
Thank you to the 1,326 farmers who took the time to respond.

Big surplus but will it last?

A week after the ‘Wellbeing Budget’, the Government’s books are in good health.  Although we are still in the 2018/19 financial year, the Government’s Interim Financial Statements for the 10 months to 30 April show a $5.2 billion operating surplus before gains and losses, twice as big as forecast.
Core Crown tax revenue of $71.1 billion was $2.3 billion (3.3%) above forecast and core Crown expenses of $70.9 billion were $280 million (0.4%) below forecast. Net core Crown debt was $62.3 billion, or 21.2% of GDP, $1.1 billion less than forecast.
There is no doubt the current year will deliver a bumper surplus but the picture is less clear for the year beginning on 1 July.  The Budget’s huge increase in spending for 2019/20 will slash the surplus to a forecast $1.1 billion but even this is predicated on a pick-up in economic growth to 3.2%, quite a turnaround from the slowing trend of the past couple years.
With another big increase in spending slated for 2020, will surpluses soon become a thing of the past?  We hope not.

NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 6 June) continue to show that despite rain in many areas over the past week soils continue to be dryer than usual in a number of areas.  Northland and the east coast of the North Island are particularly dryer than usual. 

Exchange Rates

Over the course of the week the NZ Dollar was up against the Trade Weighted Index and also up against all our major trading partners.


NZ Dollar versus

This Week


Last Week (30/5/19)

Last Month (6/5/19)

Last Year (6/6/18)

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 both the 90 Day Bank Bill rate and the 10 Year Government Bond Rate edged downwards.  The Official Cash Rate will next be reviewed on 26 June. 



This Week


Last Week (30/5/19)

Last Month (6/5/19)

Last Year (6/6/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ