Economic Week - November 20


by Nick Clark

GDT lifts

The Global Dairy Trade shrugged off the previous fortnight’s drop to lift 1.8% at this week’s auction.

Four of the six commodities on offer posted increases.  Whole milk powder was up 1.8%, skim milk powder up 2.5%, anhydrous milk fat up 4.1%, and butter up 0.4%.  On the other hand, declines were posted for lactose (down 18.8%) and cheddar (down 3.5%).

The average selling price was $US3,157 and 35,303 tonnes of product were sold.

The GDT has risen at four of its last five auctions, but it remains 9.4% lower than at the same time last year.

 

Grain finding buyers

The Arable Industry Marketing Initiative’s October 2020 Cereal Areas and Volumes Survey showed that for the 2019-20 season, New Zealand cereal grain production (wheat, barley, and oats) was estimated at 881,800 tonnes, with maize grain production estimated at 181,800 tonnes. This made for an estimated total production of grain of 1,063,600 tonnes.

Unsold stocks of cereal grain, summed over all six crops, was estimated to have reduced by 50% between 1 July 2020 and 10 October 2020.  Compared to the same time last year, unsold stocks of cereal were estimated to be unchanged overall, with an increase in unsold stocks of milling and feed wheat offset by a decrease in unsold stocks of malting and feed barley.

Looking ahead to the 2020/21 season, the total area sown or intended to be sown in cereals is estimated to be 95,500 hectares, down 3% on last season. At the date of the survey, 85% of this total area had been sown, leaving 15% still to sow. AIMI reported that spring sowings in Southland had been delayed by wet conditions, while growers in other regions reported concern over low moisture levels.

 

Food prices fall

Statistics NZ’s monthly Food Price Index showed food prices fell 0.7% in October 2020, pushed down by seasonally lower fruit and vegetable prices. After seasonal adjustment food prices were up 0.1% for the month.

In October 2020 compared with September 2020:

  • Fruit and vegetable prices fell 5.6%, with fruit up 3.9% and vegetables down 11.1%;
  • Meat, poultry, and fish prices rose 0.5%, with beef and veal down 0.3% and hogget, lamb, and mutton down 1.8%; and
  • Grocery food prices fell 0.2%, with bread and cereals up 0.1% and milk, cheese, and eggs unchanged.

Annual food price inflation was 2.7%.  Comparing October 2020 with October 2020:

  • Fruit and vegetable prices increased 10.3%, with fruit up 9.5% and vegetables up 11.1%;
  • Meat, poultry, and fish prices increased 1.0%, with beef and veal up 6.6% but mutton, lamb, and hogget down 3.5%; and
  • Grocery food prices increased 0.7%, with bread and cereals up 1.6% and milk, cheese, and eggs up 1.3%.

Meanwhile, the Government announced this week that a market study would be undertaken on supermarkets, ‘looking at whether the sector is as competitive as it could be’.  The study will be undertaken by the Commerce Commission, which has been given until 23 November 2021 to publish its final report.

 

COVID impacts producer prices

Statistics NZ’s quarterly Business Price Indexes showed COVID-19 continuing to have an impact on producer prices, with output prices down and input prices up in the September quarter.

Overall, the Producer Price Index for Outputs (prices received by businesses) was down 0.3% compared to the June quarter (and down 0.1% for the year).  Output prices for sheep, beef and grains farming were up 3.9% for the quarter (but down 9.2% for the year) while those for dairy farming were down 1.1% for the quarter (and down 3.5% for the year).

Turning to prices paid by businesses, the Producer Price Index for Inputs was up 0.6% for the quarter (but down 0.4% for the year).  Input prices for sheep, beef, and grains farmers were down 0.6% for the quarter (and down 2.4% for the year) and those for dairy farmers were down 0.8% for the quarter (but up 4.1% for the year). 

Statistics NZ noted falling global demand, higher freight costs, and disruption to business caused by the pandemic as influencing producer prices in the September quarter.

 

Farm expenses static

The same statistical release showed a 0.1% drop in the Farm Expenses Price Index for the September 2020 quarter, with the Index also down 0.1% compared to the same quarter last year.

Compared to the June 2020 quarter, prices fell for big ticket items like fertiliser, lime, and seeds (down 1.3%) and interest rates (down 0.5%).  However, there were large increases for fuel (up 8.2% after a 21.2% drop in the June quarter), electricity (up 4.5%), and weed and pest control (up 3.4%).

Compared to the September 2019 quarter, prices were down for fuel (down 17.4%), interest rates (down 11.5%), and fertiliser, lime, and seeds (down 2.8%).  The largest annual increases were for grazing, cultivation, harvest, and purchase of animal feed (up 7.9%), weed and pest control (up 6.1%), and insurance premiums (up 5.3%).

 

Farm sales volumes strengthening 

The Real Estate Institute’s latest Rural Market Statistics has shown farm sales continuing to strengthen albeit off low levels. 

Overall, there were 378 farm sales in the three months ended October 2020.  This was down 5.7% on the three months ended September 2020, but up a whopping 45.4% on the three months ended October 2019. 

1,331 farms were sold in the year to October 2020.  This was 0.3% fewer than were sold in the year to October 2019, but a big improvement on large annual declines recorded over the past couple years.  Dairy farms were down 19.2% for the year, grazing farms down 10.5%, and arable farms down 17.4%, but finishing farms were up 1.3%.

The median price per hectare for all farms sold in the three months to October 2020 was $28,399, up 10.8% compared to the three months ended October 2019 (+10.8%).  However, the REINZ All Farms Price Index, which adjusts for differences in farm size, location, and farming type, was down 1.7% over the same period.

REINZ considers the pastoral sector to be in good health, especially compared to other sectors of the economy, helped along by very favourable spring conditions and solid prices for most farm production.

 

Mixed pictures for manufacturing and services

Manufacturing experienced a drop in expansion during October, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).  The seasonally adjusted PMI for October was 51.7 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining).  This was down 2.3 points from September.  BusinessNZ noted that the manufacturing sector is ‘in a state of flux’ and BNZ considered the PMI result to be a reminder not to get too carried away with the sense of recovery. 

Meanwhile, activity in the services sector lifted slightly in October, with the Performance of Services Index (PSI) coming in at 51.4, up 1 point from September.  BusinessNZ noted that the sub-indicators within the PSI were mixed and BNZ observed that the PSI remains well below its historical average of 54.0, which it felt was disappointing at a time when service industries should be enjoying a rebound in activity.

 

Banking Survey thank you

A big thank you to the more than 1,300 respondents to our November 2020 Banking Survey.  The survey has closed and Research First is now analysing the data.  We expect to be able to release the results at the end of month.

 

NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 19 November) show it being significantly wetter than usual across most eastern areas of the North Island (especially Hawkes Bay), the western tip of Taranaki, and Nelson-Tasman.  There are pockets of dryer-than-usual areas in both Islands, but they are nowhere nearly as widespread as they were as recently as two weeks ago.


Exchange Rates

After making strong gains last week, the NZ Dollar this week slipped 0.4% against the TWI.  It was essentially unchanged against the US Dollar, Australian Dollar, and UK Pound, but down against the Euro, Japanese Yen, and Chinese Renminbi.

 

 

NZ Dollar versus

This Week

(19/11/20)

Last Week (12/11/20)

Last Month (19/10/20)

Last Year (19/11/19)

US Dollar

0.6904

0.6897

0.6627

0.6391

Australian Dollar

0.9471

0.9470

0.9328

0.9413

Euro

0.5833

0.5856

0.5653

0.5774

UK Pound

0.5218

0.5217

0.5121

0.4935

Japanese Yen

71.70

72.69

69.84

69.34

Chinese Renminbi

4.5173

4.5658

4.4387

4.4814

Trade Weighted Index

73.18

73.45

0.7141

70.81

Source: Reserve Bank of NZ

 

Wholesale Interest Rates

Over the course of the week the 90 Day Bank Bill interest rate was down three basis points to 0.25%, but the 10 year Government Bond yield held onto last week’s big increase and was up a further 2 basis points to 0.86%.

 

The Reserve Bank will next review monetary policy settings (including the OCR) on 24 February 2021.

 

 

This Week

(19/11/20)

Last Week (12/11/20)

Last Month (19/10/20)

Last Year (19/11/19)

OCR

0.25%

0.25%

0.25%

1.00%

90 Day Bank Bill

0.25%

0.28%

0.28%

1.21%

10 Year Government Bond

0.86%

0.84%

0.54%

1.41%

Source: Reserve Bank of NZ