Economic Week - January 22


by Nick Clark

Dairy prices up again

This week saw another solid increase in the Global Dairy Trade, with the GDT Price Index rising 4.8% from the previous auction a fortnight ago.

All but one of the six commodities offered rose in price.  Whole milk powder, the biggest by volume, was up 2.2%, skim milk powder up 7.0%, anhydrous milk fat up 17.2%, lactose up 6.6%, and butter up 4.6%.  Cheddar was the only commodity to fall, slipping 0.3%.

Overall, the average selling price was US$3,593 and 29,606 tonnes were sold.

This week’s rise is the fifth in a row and the GDT has increased at eight of its last nine auctions stretching back to mid-September.  The GDT Price Index is now up 5.7% on the same time last year.  Strong Chinese demand appears to be the main driver for higher dairy prices and increases seen over recent months is also part a broader lift in global commodity prices.

In response, Westpac lifted its 2020/21 farmgate milk price forecast by 50 cents to $7.50 per kg MS, ahead of ANZ’s forecast of $7.20 revised last week (Westpac also revised up its 2021/22 forecast to $7.25, well ahead of ANZ’s $6.40).  Rabobank is for now sticking with its 2020/21 forecast of $7.00 revised last month but this week it acknowledged upside risk to that forecast.

 

Farm sales end 2020 on a high

There were 520 farm sales in the three months to December 2020, up 50.7% on the same period last year, according to the Real Estate Institute of NZ’s Rural Property Data

Overall, there were 1,462 farms sold in the year to December 2020, up 15.6% on the year to December 2019.  Sales of dairy farms were up 26.2% and finishing farms up 32.0%, but there were declines for grazing farms (down 9.6%) and arable farms (down 23.8%).

There was also growth in sales prices, with a $27,317 median price per hectare for the three months to December 2020, up 18.9% on the same period last year.  The REINZ All Farm Price Index, which adjusts for farm size, location, and farming type, was also up 1.4% in the three months to December 2020 compared to the same period last year.

After three years of decline in sales volumes and relatively flat prices, the rural property market has recovered towards the end of 2020.  However, it is still relatively subdued, especially compared to its hey days of the 2000s and early 2010s.

 

Food prices rise

Higher fruit and vegetable prices have kept food price inflation well above the Consumer Price Index, according to Statistics NZ’s Food Price Index for December 2020.

Food prices rose 0.1% in December 2020, although after seasonal adjustment they were up 0.5%. In December 2020 compared with November 2020:

  • Fruit and vegetable prices rose 1.4%, with fruit up 2.1% and vegetables up 1.0%;
  • Meat, poultry, and fish prices fell 0.3%, with beef and veal down 2.9% and mutton, lamb, and hogget down 2.1%; and
  • Grocery food prices rose 0.3%, with bread and cereals up 0.4% and milk, cheese, and eggs unchanged.

     

    For the year to December 2020, annual food price inflation was 2.9%, more than double the increase of the CPI.  In December 2020 compared to December 2019:

  • Fruit and vegetable prices rose 8.9%, with fruit up 9.7% and vegetables up 8.6%;
  • Meat, poultry, and fish prices fell 0.7%, with beef and veal up 0.1% and mutton, lamb, and hogget down 1.3%; and
  • Grocery food prices rose 1.8%, with bread and cereals up 1.2% and milk, cheese, and eggs up 2.3%.

Stats NZ noted that in 2020 prices have been high for a variety of fruit and vegetable crops, including potatoes, courgettes, and tomatoes, at different times of the year and for different reasons, including growing conditions, international trade, and labour costs.

Later today (22 January) the CPI for the December 2020 quarter will be released.  Economists expect the annual increase to be around 1.2%.

 

Construction driving improved sentiment

NZIER’s Quarterly Survey of Business Opinion has shown improving business confidence, driven by increased construction demand.

The December survey showed a net 16% of businesses expected a deterioration in general economic conditions over the coming months, a 22 point improvement on the net 38% in the September quarter. On firms’ own trading activity, a net 1% reported reduced demand, suggesting a rebound in annual GDP growth to around 2% at the end of 2020 from the lockdown lows in mid-2020.

The building sector remains the most optimistic of the sectors surveyed.  Although sentiment improved across all sectors, conditions remain tough for some sectors (especially retail and services) and businesses remain cautious about general economic conditions ahead.

Encouragingly, a net 15% of firms are planning to increase headcount in the next quarter, while a net 10% are looking to invest in plant and machinery.  However, labour shortages are becoming more acute with a net 43% reporting difficulty in finding skilled labour.  Cost pressures are also intensifying but this is yet to translate into higher selling prices.

The QSBO is a well-respected indicator of business sentiment and economic activity.  It does not survey the agriculture sector but it does cover industries that service agriculture.

 

Housing boom continues

The booming housing market continued into December, according to the Real Estate Institute of NZ’s latest Residential Property Data.

In December 2020, the median sales price for houses sold was $749,000, a whopping 19.3% higher than in December 2019.  Auckland’s median price was up 17.4% to $1,040,000, but there were even bigger percentage increases in the regions, especially Gisborne (up 43.9%), West Coast (up 31.9%), Manawatu-Wanganui (up 31.3%), Hawkes Bay (up 27.3%), and Northland (up 25.2%).  All regions had double digit percentage increases.

8,935 houses were sold in December 2020, up 36.6% on the 6,543 sold in December 2019, and the highest number of properties ever sold in a December month.  The median days to sell also dropped from 31 in December 2019 to 27 in December 2020.

REINZ noted a 29.1% drop in properties available for sale to 12,932 – the lowest recorded level of inventory in REINZ’s records. The lack of listings and very strong demand is – unsurprisingly – pushing up sales prices as people compete hard for what is on offer, helped along by banks prepared to lend plenty at record low interest rates.

 

Retail sales strengthen

Retail sales increased in December, according to Statistics NZ’s monthly Electronic Card Transactions.

Total retail sales were $7.46 billion in December 2020, up 3.5% on December 2019. There were increases for ‘consumables’, such as groceries and liquor (up 7.5%); ‘durables’, such as furniture, hardware, and appliances (up 6.7%); apparel (up 8.2%); and vehicles (up 9.6%). 

Partially offsetting these increases were decreases for fuel (down 11.6%) and hospitality, where an overall 5.3% drop was masked by the contrasting fortunes of accommodation (down 32%) and food and beverage services (up 1.8%).  The reduction in fuel spending is mainly due to lower fuel prices rather than any big drop in driving.

Total annual retail card spending for the 2020 calendar year was $68 billion. This is down just 0.2% ($154 million) from 2019, which is not bad given the disruptions and economic impacts of COVID-19 on the June quarter in particular.

 

Job ads recover

The BNZ/Seek Employment Report for December 2020 has shown job ads back to where they were at the end of 2019. 

After solid growth in October and November, job ads increased a further 3.0% in December.  This took job ads back to December 2019’s level (0.2% higher to be precise).

Most industries had month-on-month increases, with very strong growth in ads for science & technology (up 28%), government & defence (up 17%), and human resources & recruitment (up 15%).  In contrast, farming, animals & conservation was one of several industries to see a reduction in job ads, and it had the biggest month-on-month decline (down 4%).

By region, Taranaki (up 14%) had the biggest month-on-month increase, while Marlborough (down 8%) but had the biggest decline.

 

Net migration and travel crushed.

Annual net migration continues to drop steadily, according to Statistics NZ’s International Migration Statistics.  This is because there have been far fewer migrant arrivals and departures since border restrictions were imposed in March 2020.

Net migration for the year to November 2020 was provisionally estimated at 52,400, based on 102,900 migrant arrivals, and 50,500 migrant departures.  Almost all the net migration gain over the year to November occurred from December 2019 to March 2020.

It was a similar story for overseas visitors, with Statistics NZ’s International Trade Statistics showing 5,100 overseas visitor arrivals for November 2020, down 367,500 on November 2019.  For the eight months from April to November there were only 31,400 visitor arrivals, down 2.1 million compared to the same eight months in 2019.

 

NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 21 January) show most of the country’s soils being about average for this time of the year.  There are some relatively drier areas mainly in the North Island, with Northland and Coromandel the most prominent.  Meanwhile, there are relatively wetter areas in Manawatu-Horowhenua, Buller-Grey, South Canterbury, and most of Otago-Southland.


Exchange Rates

The NZ Dollar was little changed this week, weakening 0.1% against the TWI.  It was down a little against all our major trading partners, except the Euro where it rose a little.

 

 

NZ Dollar versus

This Week

(21/1/21)

Last Week (14/1/21)

Last Month (21/12/20)

Last Year (21/1/20)

US Dollar

0.7185

0.7192

0.7101

0.6605

Australian Dollar

0.9265

0.9281

0.9352

0.9611

Euro

0.5930

0.5912

0.5812

0.5955

UK Pound

0.5257

0.5269

0.5296

0.5083

Japanese Yen

74.44

74.73

73.39

72.79

Chinese Renminbi

4.6473

4.6498

4.6450

4.5319

Trade Weighted Index

74.55

74.63

74.20

72.50

Source: Reserve Bank of NZ

 

Wholesale Interest Rates

Over the course of the week the yield for the 90 Day Bank Bill was unchanged and the yield for 10 year Government Bonds was up 2 basis points.  The Reserve Bank will next review monetary policy settings (including the OCR) on 24 February.

 

 

This Week

(21/1/21)

Last Week (14/1/21)

Last Month (21/12/20)

Last Year (21/1/20)

OCR

0.25%

0.25%

0.25%

1.00%

90 Day Bank Bill

0.28%

0.28%

0.27%

1.27%

10 Year Government Bond

1.04%

1.06%

0.96%

1.55%

Source: Reserve Bank of NZ