Economic Week - January 15

by Nick Clark

Commodities (and the Dollar) end 2020 on a high.

The ANZ World Commodity Price Index posted a 1.8% increase in the month of December, to finish a challenging year only just below December 2019’s level (down 0.4%)

Dairy led the way, with its prices lifting 4.3% for the month and with all its major product categories rising.  Dairy prices finished the year 1.2% down – much improved over the past few months.

It was less positive for meat and fibre, with its prices falling 1.7% for the month, to be down 14.1% for the year. For the month, beef was down 2.4% and lamb down 1%.  Wool prices also eased in December, after crawling upward over the previous six months.

Horticulture prices eased slightly in December, but forestry prices were up 2.7% for the month (and up 2.3% for the year).  Aluminium prices also increased, up 4.1% for the month and nearly 14% for the year.

It was also a strong month for the NZ Dollar, with it strengthening against all our main trading partners, except the Australian Dollar.  So, in local currency terms the World Price Index fell 0.9% and it was 5.9% below December 2019’s level.


GDT starts 2021 positively.

The year’s first Global Dairy Trade Auction (held last week) posted a solid 3.9% increase, with all commodities increasing in price compared to the previous auction in mid-December.

Whole milk powder was up 3.1%, skim milk powder up 4.1%, anhydrous milk fat up 5.5%, butter up 7.2%, cheddar up 5.0%, butter milk powder up 6.9%, and lactose up 7.4%.  The average selling price was US$3,420 and 30,313 tonnes were sold.

The GDT Price Index has increased at seven of the past eight auctions since mid-September, and it is now 2.5% higher than at the same time last year.

In response to this recent run of increases ANZ this week increased its forecast milk price by 50 cents to $7.20 per kg MS.  However, it kept its 2021/22 season forecast unchanged at $6.40 per kg MS as it thinks the recent strength in the NZ Dollar will have more of an impact on next season’s milk price.


But primary sector exports expected to fall.

Before Christmas, the Ministry for Primary Industries released a December 2020 update of its Situation and Outlook for Primary Industries (SOPI). 

SOPI’s overview noted that primary industry production and exports performed better than expected during the ‘unprecedented challenges’ presented by COVID-19, with primary industry exports up 3.6% in the year ended June 2020 to reach $48 billion.

Looking ahead to the year ending June 2021, primary industry export revenue is forecast to fall 1.0% to $47.5 billion. A strengthening NZ Dollar and a weaker outlook for meat and wool, dairy, and seafood will offset a recovery in forestry and continued strength in horticulture.

Despite the predicted drop in export revenue, this is still considered a ‘relatively positive’ outlook given all that is happening. However, SOPI observed that uncertainties present downside risks.  These uncertainties include the potential for the global trade and economic outlook to deteriorate, a stronger NZ Dollar, an emerging La Niña weather pattern, labour and skill challenges, and logistical difficulties.

SOPI cautioned there is ‘much uncertainty’ about the future path of the pandemic and of government responses to contain it.  While vaccine developments are good news, many countries are seeing record infection levels and are strengthening restrictions. Government stimulus packages in major markets could also wind down in the coming year, impacting on consumer incomes and demand for New Zealand food and fibre.

For each of the major sectors, SOPI forecasts the following export performance for the year ended June 2021:

  • Dairy: Dairy export revenue is forecast to fall 4.6% to $19.2 billion. Expectations of another strong production season are forecast to be offset by weaker global dairy prices, as markets continue to deal with the economic impacts of COVID-19. 
  • Meat and Wool: The outlook for meat and wool exports remains volatile, with export revenues forecast to decrease 8.2% to $9.8 billion, as export prices recede after hitting near record highs in 2019 and COVID-19 impacts on food service.
  • Forestry: Forestry exports are expected to increase 8.1% to $6.0 billion due to strong demand from China for logs and from the United States for sawn timber.
  • Horticulture: Horticulture export revenue is forecast to rise 9.1% to nearly $7.1 billion, with consumer demand for fresh fruit and wine remaining strong.
  • Seafood: Seafood export revenue is forecast to be down by 1.4% to $1.8 billion in the face of significant impacts from COVID-19 and the ongoing global economic downturn.
  • Arable: Arable export revenue in 2021 is expected to increase by 5.3% to $305 million, building on the significant growth for the previous year.
  • Processed Foods and Other Products: Exports of processed foods and other products are expected to increase by 9.2% to reach $3.3 billion. The main growth drivers are live animals, honey, innovative processed foods, and sugar and confectionery.

Economic forecasting is always a difficult art, even at the best of times, and even more so during such a volatile economic environment.  It will be interesting to see how MPI’s forecast turns out, especially if commodity prices continue their recent strengthening.  Here’s hoping its dairy and meat and wool forecasts are exceeded!


Ag debt down.

Lending to the agricultural sector fell a little in November according to the Reserve Bank’s monthly Sector Lending Statistics.

Agricultural lending was $62.71 billion in November 2020, down $25 million (or 0.04%) compared to October.  Compared to November 2019, the sector’s debt was down $819 million, or 1.3%.

Turning to the agricultural sub-sectors, lending to:

  • Dairy cattle farming was $38.95 billion, down $81 million for the month and down $1.80 billion (-4.4%) for the year.
  • Sheep, beef cattle, and grains farming was $15.19 billion, up $69 million for the month and up $87 million (+0.6%) for the year.
  • Horticulture was $5.57 billion, up $14 million for the month and up $649 million (+13.2%) for the year.
  • Other farming $2.31 billion, down $33 million for the month and down $86 million (-3.6%) for the year.

Looking at other sectors, housing lending was up 7.7% for the year, business lending was down 3.3%, and personal consumer lending was down 10.8%.  The strong growth in housing lending is no surprise given the boom in the housing market.


More beef cattle, but fewer dairy cattle and sheep.

The provisional results from Statistics NZ’s Agricultural Production Survey 2020 are out and they show that as of 30 June 2020, the number of:

  • Beef cattle was 3.95 million, up 1.6% from 2019;
  • Dairy cattle was 6.11 million, down 2.4% from 2019;
  • Sheep was 26.16 million, down 2.5% from 2019;
  • Deer was 0.83 million, up 2.3% from 2019; and
  • Pigs was 0.23 million, down 8.7% from 2019.

During the year ended 30 June 2020, the area of:

  • Wheat harvested was 45,200 hectares, relatively unchanged from 2019; and
  • Barley harvested 45,800 hectares, a decrease of 17.5% from 2019.

Dairy cattle peaked at 6.7 million in 2014 after which they have gradually declined. In contrast beef numbers have climbed steadily since bottoming out at 3.53 million in 2016.

Sheep numbers have declined for all but two years since 2006 when there were 40 million. Today’s national flock is a far cry from 1982 when there were 70 million. New Zealand now has 5 sheep for every person, after peaking at 22 sheep for every person in 1982.

These are provisional results, with the final results due in May.


Imports down, exports stable.

Imports slumped in November, caused by disruptions to global supply chains and delays at New Zealand ports.

Statistics NZ’s Overseas Merchandise Trade statistics showed that goods imports were worth $4.95 billion in November 2020, down $1.05 billion (-17.5%) compared to November 2019.  There were particularly big drops for aircraft and parts (-70.1%); petroleum and products (-47.1%); mechanical machinery and equipment (-25.8%); and vehicles, parts, and accessories (-17.1%).  On the other hand, imports of electrical machinery and equipment increased 7.9%.  There was also a 22.4% increase in the value of food residues, wastes, and fodder imported, but a 7.5% decline for fertiliser.

Goods imports for the year to November 2020 were valued at $56.81 billion, down $7.72 billion (12.0%) compared to the year to November 2019.  There were big drops for aircraft and parts (-58.9%); petroleum and products (-31.6%); and vehicles, parts, and accessories (-26.5%). One of the few to increase in annual terms was imports of food residues, wastes, and fodder, up 24.8%, while fertiliser imports were down 3.0%.

In contrast, goods exports held up a lot better, worth $5.21 billion in November 2020, down $11 million (-0.2%) compared to November 2019.  Movements for key export commodities follow:

  • Milk powder, butter, and cheese down 0.3% to $1.80 billion;
  • Meat and edible offal down 11.5% to $563 million;
  • Logs, wood and wood articles down 0.6% to $417 million;
  • Fruit up 25.2% to $82 million;
  • Preparations of milk, cereals, flour, and starch up 40.1% to $226 million; and
  • Wine down 6.2% to $145 million.


    In addition, live animal exports were up 292.0% to $80 million; eggs, honey, and other edible animal products up 42.6% to $49 million; but wool was down 26.5% to $44 million 

    On an annual basis, goods exports for the year to November 2020 were worth $60.07 billion, up $376 million (0.6%) on the year to November 2019. Movements for key export commodities follow:

  • Milk powder, butter, and cheese up 4.2% to $16.20 billion;
  • Meat and edible offal up 3.3% to $8.16 billion;
  • Logs, wood and wood articles down 11.2% to $4.47 billion;
  • Fruit up 14.3% to $3.90 billion;
  • Preparations of milk, cereals, flour, and starch up 7.8% to $2.47 billion; and
  • Wine up 7.5% to $1.99 billion.


In addition, live animal exports were up 57.0% to $464 million; eggs, honey, and other edible animal products up 41.3% to $525 million; but wool was down 28.6% to $369 million.

November 2020 saw a goods trade surplus of $252 million, compared to a $786 million deficit for November 2019.  For the year to November 2020 the goods trade balance was a surplus of $3.26 billion, a massive turnaround from a $4.84 billion deficit for the year to November 2019.


Rural regions rule the roost.

Rural New Zealand dominated the September quarter’s growth stakes according to ASB’s latest Regional Economic Scorecard.

Northland was the biggest upward mover, climbing seven places to take top spot.  In fact, the top three regions all have strong primary sector economies – Northland, Bay of Plenty, and Waikato. Then came a string of other smaller regions, all with strong primary sectors. 

None of the big metropolitan regions appeared in the top ten, with Wellington coming in at 11th and Auckland at 13th.  After Auckland came the bottom three regions Southland, Canterbury, and Otago.  Otago’s bottom ranking reflects its economy’s particularly strong reliance on international tourism.


Traffic volumes slip.

ANZ’s monthly Truckometer Index has shown a further easing in traffic volumes in December.  Light Traffic fell 0.6% compared to November but Heavy Traffic rose 0.4%.

Both traffic indexes were higher than a year ago (with Light Traffic 7.6% higher and Heavy Traffic 5.4% higher), but the post-lockdown ‘overshoot’ is easing.

For the December quarter as a whole, the Heavy Traffic Index fell 2.6%. ANZ believes this is consistent with its forecast of a ‘mild fall in GDP’ following the big September quarter bounce.


Businesses perking up.

For the first time in more than three years ANZ’s monthly Business Outlook Survey is reporting more optimists than pessimists in the business community.

The December survey showed a net 9.4% of businesses expecting general economic conditions to improve over the coming year, a 16.3 point rise on November’s -6.9%.  This is the first positive result for general economic conditions since August 2017.  Agricultural respondents remain deeply negative (and the only negative sector), with a net 38.5% expecting general economic conditions to worsen.  However, this was a 13.9 point improvement from November’s -52.4%.

Turning to own activity, the better predictor for future economic activity, a net 21.7% of respondents expect their business activity to increase over the coming year, up 12.6 points compared to November.  The feeling in agriculture has improved markedly, with a net 15.4% expecting their activity to increase, up 24.5 points. 

Almost all indicators strengthened, including investment, employment, capacity utilisation, profits, and exports.  Less encouragingly was a deterioration in ease of credit, possibly due to the signalled reinstatement of LVR restrictions.  There was also a pick-up in cost expectations, which indicates rising inflationary pressures.  Construction was the most positive industry.


Consumers cautiously confident.

The monthly ANZ-Roy Morgan Consumer Confidence Index lifted 5.1 points in December from November’s 106.9, edging it closer to its historical average of 120.

Current and future conditions sub-indexes lifted by similar amounts. Households expect the housing boom to continue but they remain wary about whether it is a good time to buy a major household item.  Interestingly, inflation expectations are relatively high and they have increased over the past six months.


Residential consents strengthen.

Statistics NZ’s monthly Building Consents Issued statistics show the booming housing market driving growth in residential building construction. 

3,881 residential building consents were issued in November 2020, up 19.9% on November 2019.  Growth was particularly strong for townhouses, flats, and units, while growth for standalone houses was flat.  For the year to November 2020, 38,624 consents were issued, up 4.2% from the previous year.  These were valued at $14.24 billion, up 3.8%.

The picture for non-residential building, including farm buildings, was less bullish.  For the year ended November 2020 the value of non-residential building consents was $6.95 billion, down 6.0% from the previous year.  Of that, $284 million was for farm buildings, down 2.1%.


Farm confidence survey – thank you!

Federated Farmers’ January 2021 Mid-Season Farm Confidence Survey has closed and results are being analysed by Research First.  Many thanks to the nearly 1,100 farmers who completed it – we are very grateful for your ongoing support.  Expect to see the results around the end of the month.


NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 14 January) show most of the country’s soil moistures about average for this time of year (greens and yellows on the soil moisture anomaly map) and in a much better position compared to the same time last year.  The main exceptions are in the Far North where soils are significantly drier than usual soils, and Otago where soils are significantly wetter than usual. 


Exchange Rates

The NZ Dollar was down this week, weakening 1.0% against the TWI.  It was down against all our major trading partners, except the Euro against which it was stable.



NZ Dollar versus

This Week


Last Week (7/1/21)

Last Month (14/12/20)

Last Year (14/1/20)

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 yield for the 90 Day Bank Bill was up 1 basis point and the yield for 10 year Government Bonds was up 6 basis points.  The Reserve Bank will next review monetary policy settings (including the OCR) on 24 February 2021.



This Week


Last Week (7/1/21)

Last Month (14/12/20)

Last Year (14/1/20)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ