Economic Week - September 6

by Nick Clark

Commodity prices up

After declines in June and July, August saw ANZ’s Commodity Price Index up 0.3% in world prices.
Dairy prices lifted 1.3% in August, with higher milk powder prices but lower butter prices.  Meat and fibre prices were down 0.7%, with lamb up but beef and wool down. Horticulture was up 0.2% and forestry up 0.7% but aluminium was down 3.1%.
The world price index is up 0.9% compared to August 2018.
The NZ Dollar fell sharply in August after the bigger than expected OCR cut and this saw the NZ Dollar index jump 3.9% in the month.  It is also up 3.7% compared to August 2018.

Terms of trade rises
The merchandise terms of trade rose 1.6% in the June quarter to sit only just below its 2017 peak, according to Statistics NZ’s quarterly Overseas Trade Indexes.
The terms of trade measures the relative movement of export prices to import prices.  In the June quarter export prices for goods rose 3.4% while import prices for goods rose 1.8%.
Agriculture was a big contributor to the positive quarter, with dairy prices up 11% and meat prices up 4.9% (lamb prices up 4.7% and beef prices up 5.3%).  Lamb prices have hit a record high since the series began in 1982.  However, dairy export volumes fell 9.3% and meat volumes fell 3.1%. 
Overall, export volumes were down 2.6% and import volumes were also down 3.5%.  The fall in export volumes comes after a strong March quarter and reflects timings in agricultural production and processing.  Of more concern is that the fall in import volumes likely reflects the slowing domestic economy.
In contrast to goods trade, the services terms of trade fell 4.0%, with services export prices down 2.5%, while services import prices rose 1.6%.

GDT slips
Dairy prices edged down slightly in this week’s Global Dairy Trade auction. 
The GDT Price Index was down 0.4%, but movements of individual commodities were mixed.  Four commodities posted declines, including the biggest by volume, whole milk powder (down 0.8%). Three were up, including the second biggest by volume, skim milk powder (up 0.7%).  One was unchanged (butter).
Overall, the average selling price was $US 3,202 and 39,689 tonnes were sold. 
The GDT has dropped at seven of the last eight auctions but three of those falls have been very small (each less than 0.5%). 
The GDT Price Index is still 6.5% higher than at the same time last year and the lower exchange rate should also help the payout to farmers.  For the current 2019/20 season most commentators expect the milk price to be around $7 per kg milk solids albeit with no dividend on top.

Ag debt up in July
Despite a distinct tightening in credit conditions, agricultural debt continued to creep up in July, according to the Reserve Bank’s monthly Sector Lending Statistics
Agricultural debt was $63.9 billion in July, up $250 million on June and up $1.8 billion (or 2.8%) on July 2018. 
Although agricultural debt is still growing, the growth is slowing (its annual increase was 4.0% as recently May) and its growth remains well behind that of housing (6.3%) and business (7.7%) but ahead of personal consumer (up 0.2%).

Rates continue to rise
Council rates revenue was $6.2 billion for the year to June 2019, up 6.6% on the previous year, according to Statistics NZ’s June quarter Local Authority Statistics.
Total local authority operating revenue was $10.7 billion, up 7.1% for the year.  Local authority operating spending was $11.0 billion, up 4.6% for the year.
Local government spending and rates both continue to rise much faster than any credible measure of inflation.  This should be food for thought for candidates for the upcoming local elections.  For more information on what we think see Federated Farmers’ Local Elections Platform.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 5 September) show that soil conditions across country continue to be ‘about average’ for this time of year.  The Maniototo area of Otago and coastal Wairarapa are both a bit dryer than usual while Kaikoura is a bit wetter.

Exchange Rates

The NZ Dollar was up for the week against the TWI and most of our main trading partners, the exception being the Australian Dollar.



NZ Dollar versus

This Week


Last Week (29/8/19)

Last Month (5/8/19)

Last Year (5/9/18)

US Dollar





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UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index