Economic Week - May 22

by Nick Clark


GDT rises 

Dairy prices lifted 1.0% at this week’s Global Dairy Trade auction. 

Although whole milk powder (easily the biggest commodity by volume) was down 0.5%, skim milk powder and anhydrous milk fat (the next two biggest) lifted 6.7% and 2.7% respectively. Butter, cheddar, and rennet casein all fell in price, but lactose jumped 15.6%. 

Overall, the average selling price was $US2,907 and 16,787 tonnes of product were sold. 

Since the start of April, the GDT Price Index has risen twice and fallen twice.  However, the Price Index is down 15.9% compared to the same time last year. 


Fonterra’s update 

Fonterra has reported a sharp lift in its earnings for the first nine months of its financial year, with total group normalised Earnings Before Interest and Tax for the nine months to 30 April of $815 million, up $301 million on the same time last year.  This is a good result but Covid-19’s impact on the global economy is expected to weigh on the current fourth quarter. 

Fonterra has narrowed the forecast range for its 2019/20 milk price to $7.10-$7.30 per kg milk solids (kgMS), which is towards the lower end of its previous forecast $7.00-$7.60. 

Looking ahead to the upcoming 2020/21 season, Fonterra made an opening forecast milk price of $5.40-$6.90 per kgMS and set an advance rate schedule at the mid-point of $6.15. 

Fonterra said it will contribute about $11 billion to the New Zealand economy through the milk price to farmers.  This contribution will be invaluable during these troubling economic times. 


Food Price Index 

Food prices rose 1.0% in the month of April to be up 4.4% for the year to April 2020, according to Statistics NZ’s monthly Food Price Index. 

In April 2020 compared with March 2020: 

  • Fruit and vegetable prices rose 1.2% (but fell 1.1% after seasonal adjustment), with fruit down 3.6% but vegetables up 4.7%. 

  • Meat, poultry, and fish prices fell 0.6%, with beef and veal down 1.2% and mutton, lamb, and hogget down 3.7%. 

  • Grocery food prices rose 1.1%, with breads and cereals up 1.5% and milk, cheese, and eggs up 0.4%. 


For the year ended April 2020: 

  • Fruit and vegetable prices increased 2.7%, with fruit down 5.6% but vegetables up 9.4%. 

  • Meat, poultry, and fish prices increased 6.2%, with beef and veal up 11.9% and mutton, lamb, and hogget up 3.1%. 

  • Grocery food prices increased 4.2%, with breads and cereals up 5.1% and milk, cheese, and eggs up 5.9%. 


The annual increase of 4.4% was the largest in eight years. 

Drought hits sheep and beef prices

Prices for goods produced in New Zealand were flat in the March 2020 quarter, although prices received by sheep and beef farmers were hit hard by the drought. 

Statistics NZ’s quarterly Producer Price Index for outputs across all industries rose 0.1% for the quarter. However, this apparent stability was not felt by sheep, beef cattle and grains farmers, with their output prices down 11.5%.   This sharp fall coincided with dry conditions in many parts of New Zealand, with many farmers sending stock off to meat works early because of the drought. Output prices for dairy cattle farmers were down 0.6%. 

For the year to March 2020, overall output prices were up 2.2%, with those for dairy cattle farmers up 12.7% and those for sheep, beef cattle and grains farmers up 2.5%. 

Meanwhile the input prices index fell 0.3% for the quarter across all industries.  Input prices for dairy cattle farmers were up 0.4% but those for sheep, beef cattle, and grains farmers were down 0.9%.   

For the year to March 2020, overall input prices were up 1.2%, with those for dairy cattle farmers up 2.0% and those for sheep, beef cattle and grains farmers down 0.3%. 


Farm expenses inflation slows 

Statistics NZ’s Farm Expenses Price Index (FEPI) was unchanged for the March 2020 quarter. 

The biggest quarterly increases in prices were for electricity (up 2.6%), dairy shed expenses (up 2.0%), and grazing, cultivation, harvest, and purchase of animal feed (up 1.3%).  On the other hand, there were drops for fuel (down 6.0%), livestock purchases (down 2.4%), and fertiliser, lime, and seeds (down 0.9%). 

On an annual basis the FEPI was up 1.0% for the year to March 2020.  The biggest annual increases were for dairy shed expenses (up 5.1%) and repairs, maintenance, and motor vehicle repairs (up 5.0%), and local and central government rates and fees (up 3.9%).  The biggest drops were for interest rates (down 4.4%), fertiliser, lime, and seeds (down 1.5%), and electricity (down 0.4%). 


Farm sales down 

The Real Estate Institute’s Rural Market Statistics showed there were 251 farm sales in the three months to April 2020, down 30.7% on the same period last year. This drop is not surprising given that part of March and much of April was in level 4 lockdown, which made it difficult for property sales to occur. 

In all 1,167 farms were sold in the year to April 2020, 19.0% fewer than were sold in the year to April 2019.  Dairy farms were down 28.0%grazing farms were down 19.9%, finishing farms were down 29.6%, and arable farms were down 17.2%. 

The median price per hectare for all farms sold in the three months to April 2020 was $22,660 up 0.2% on the same period last yearHowever, the REINZ All Farm Price Index, which adjusts for differences in farm size, location, and farming type, was down 8.8%.  


House sales slump  

The number of houses sold in April slumped 78.5% from the same time last year, according to the Real Estate Institute’s monthly Residential Market Statistics.  As with farm sales, the level 4 lockdown, in place for most of April, made it very difficult for house sales to occur. 

Despite the huge decrease in sales volumes, median house prices across New Zealand increased to a new record high of $680,000, up 17.2% from April 2019’s $580,000. 


Population passes 5 million 

New Zealand's resident population provisionally reached 5 million in March 2020, according to Statistics NZ’s quarterly National Population Estimates.  

On 31 March 2020, the resident population was estimated at 5,002,100up 96,800 (or 2.0%) for the year. 

It took only 17 years for the population to increase from 4 to 5 million, compared to 30 years to increase from 3 to 4 million21 years to increase from 2 to 3 million, and 44 years to increase from 1 to 2 million. 


NIWA Soil Moisture Data 

NIWA’s latest year (as at 9am Thursday 21 May) show the effect of another dry week with the country’s soildrying out relative to usual conditions for this time of the year. The soil moisture anomaly shows particularly dryer than usual conditions spreading to more parts of the country.  The only area where soils are wetter than usual is coastal Wairarapa.  




Exchange Rates 

The NZ Dollar strengthened this week both against the TWI and against all our major trading partners.   



NZ Dollar versus

This Week


Last Week (14/5/20)

Last Month (21/4/20)

Last Year (21/5/19)

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 3 basis points to 0.25% but the rate for 10 Year Government Bonds was up 21 basis points to just 0.70% (back to where it was a fortnight before)The OCR is scheduled to next be reviewed on 24 June. 



This Week


Last Week (14/5/20)

Last Month (21/4/20)

Last Year (21/5/19)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ 





Nick Clark 

22 May 2020