ECONOMIC UPDATE

 

GDT drops

Despite the likelihood of increasingly dry conditions impacting on New Zealand milk supply, fears about the economic impacts of coronavirus on demand drove dairy prices down again at this week’s Global Dairy Trade auction.

 

This week’s 2.9% fall followed a 4.7% fall in early February.  Most commodities fell in price, the exception being cheddar (up 5.3%).  The two biggest by volume, whole milk powder and skim milk powder, both fell by 2.6%, and third biggest, anhydrous milk fat, fell by 5.5%.

 

Overall, the average selling price was $US3,176 and 28,181 tonnes were sold.

 

The GDT Price Index is now 3.6% lower than at the same time last year.

 

Food prices rise in January

Food prices rose in January by the highest annual increase since 2011, according to Statistics NZ’s monthly Food Price Index. 

 

Food prices were up 2.1% in January 2020 compared to December 2019 and by 0.6% after seasonal adjustment:

  • Fruit and vegetable prices rose 3.7% for the month (but were down 0.3% after seasonal adjustment), with fruit up 6.8% and vegetables up 1.3%.

  • Meat, poultry, and fish prices rose 2.3%, with beef and veal up 2.8% and mutton, lamb and hogget up 5.0%.

  • Grocery food prices rose 2.4% (and were up 1.3% after seasonal adjustment), with bread and cereals up 1.0% and milk, cheese and eggs up 3.4%.

 

On an annual basis, food prices were up 3.5% between January 2019 and January 2020: 

  • Fruit and vegetable prices rose 2.7%, with fruit up 8.2% but vegetables down 1.4%.

  • Meat, poultry, and fish prices rose 6.0%, with beef and veal up 7.5% and mutton, lamb and hogget up 11.8%.

  • Grocery food prices rose 2.3%, with bread and cereals up 3.9% and milk, cheese and eggs up 3.3%.

 

While the hike in the GST rate from 12.5% to 15% was the main factor behind 2011’s spike in food prices, this time around higher international commodity prices in the second half of 2019 would have been a key factor in pushing up food price inflation.

 

Farm sales down

Rural Market Statistics from the Real Estate Institute of NZ showed there were 363 farm sales in the three months ended January 2020, down 13.6% on the number in the three months ended January 2019. 

 

For the full year to January 2020, 1,277 farms were sold, down 14.7% on the number of sales for the year to January 2019.  Dairy farms were down 40.3%, grazing farms were down 3.9%, finishing farms were down 28.4%, and arable farms were down 9.8%.

 

Sales prices also appear to be falling.  The median price per hectare for all farms sold in the three months to January 2020 was $21,221, down 21.7% on the three months to January 2019.  The REINZ All Farm Price Index, which adjusts for differences in farm size, location and farming type, also fell 10.5% over the same period.

 

Housing market buoyant

In stark contrast to the market for farms, the housing market continued to accelerate in January, according to the Real Estate Institute of NZ’s monthly Residential Market Statistics.

 

In January 2020 the median sales price nationwide hit $615,000, up 11.8% on January 2019.  The Auckland median was up 8.7% to $875,000, while the median for the rest of the country was up 11.7% to $525,000.   All regions posted annual increases in median sales prices, with West Coast’s 42.4% leap the largest, followed by Southland (up 28.7%), Manawatu-Wanganui (up 24.5%), Hawkes Bay (up 22.2%), and Gisborne (up 20.1%).

 

Sales volumes are also up with January 2020 being the busiest January in four years, with volume growth particularly strong in Auckland, up 9.7% compared to January 2019 compared to a 3.2% increase for New Zealand as a whole.  The median days to sell also dropped sharply, down 6 days compared to January 2019, to 42 days overall.

 

For most of the past two years Auckland house prices were at best flat while the regions had strong growth. However, last year’s cuts to the OCR have helped Auckland’s real estate market surge strongly back into life.

 

Producer prices up

Prices for goods produced in New Zealand rose in the December 2019 quarter, with output prices particularly strong for farming.

 

Statistics NZ’s quarterly Producer Price Index for outputs across all industries rose 0.4% for the quarter, with output prices for dairy cattle farmers up 2.8% and sheep, beef cattle and grains farmers up 4.3%.   

 

For the year to December 2019, overall output prices were up 1.4%, with those for dairy cattle farmers up 12.6% and those for sheep, beef cattle and grains farmers up 8.9%.

 

Meanwhile the input prices index rose 0.1% for the quarter across all industries, with input prices for both dairy cattle farmers sheep, beef cattle, and grains farmers up 0.4%. 

 

For the year to December 2019, overall input prices were up 0.3%, with those for dairy cattle farmers up 0.8% and those for sheep, beef cattle and grains farmers up 1.2%.

 

When output prices rise faster than input prices it implies an improvement in margins (and vice versa).  So, based on these statistics 2019 was a pretty good year for farm margins.

 

Farm expenses inflation slows

Statistics NZ’s Farm Expenses Price Index (FEPI) rose 0.2% in the December 2019 quarter.

 

The biggest quarterly increases in prices were for local and central government rates and fees (up 3.5%), followed by fuel (up 2.8%) and insurance premiums (up 2.6%).  On the other hand, there were drops for electricity (down 4.0%), interest rates (down 2.4%), seeds (down 0.9%), and rent & hire (down 0.3%).

 

On an annual basis the FEPI was up 0.9% for the year to December, down from 2.2% for the year to September.  The biggest annual increases were for insurance premiums (up 5.5%) and livestock purchases (up 4.5%), repairs, maintenance, and motor vehicle repairs (up 4.3%), and dairy shed expenses (up 4.2%).    The biggest drops were for interest rates (down 4.9%) and electricity (down 4.5%).

 

More New Zealanders leaving

An increase in the number of departures combined with a small reduction in arrivals drove a reduction in net migration for the year-ended December 2019, according to Statistics NZ’s monthly International Migration Statistics.

 

Comparing the year ended December 2019 with year ended December 2018) provisional estimates were that there were 139,800 migrant arrivals (± 1,700), down 0.4%, and 96,100 migrant departures (± 1,500), up 6 percent.  This resulted in an annual net migration gain of 43,800 (± 2,100), down from 49,400 (± 200).

 

Statistics NZ figures also showed that 60% of migrant arrivals to New Zealand were on a work, visitor, or student visa.  This is significantly higher than five years ago.

 

Tourists down in December

Overseas visitor arrivals were down 1,000 to 528,200 in December 2019 compared with December 2018, according to Statistics NZ’s monthly International Travel Statistics. 

 

There were monthly increases in arrivals from the United States (up 3,300), Australia (up 2,400), Korea (up 2,100), India (up 1,800), and Tonga (up 1,100) but declines from the United Kingdom (down 1,500), China (down 1,200) and Germany (down 1,000).

 

Comparing the December 2019 year with the December 2018 year, the number of visitor arrivals eked out a small increase of 25,300 (or 0.7%) to 3.89 million.  There were annual increases in visitor arrivals from Australia (up 43,400), the United States (up 15,900), and Taiwan (up 8,800), but declines from China (down 41,000), Malaysia (down 14,700) and Argentine (down 7,600).

 

The impact of the coronavirus Covid-19 on international visitor arrivals, especially from China, will not be picked up in the international visitor statistics until next month.

 

Banking chart of the week…

The Reserve Bank has a very interesting page on its website called the Bank Financial Strength Dashboard.  It’s chocka with data on banks, including for their agricultural lending.    Over the coming weeks I’ll be highlighting information from it.

 

Last week it was a chart showing the latest quarter’s change in agricultural lending for each of the main banks and this week it’s a chart showing the amounts of agricultural lending by each bank.  ANZ remains the biggest agricultural lender.

 

NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 20 February) show soils across the North Island being significantly dryer that usual, especially the top half, as are those in the top of the South Island.  Otago and Southland’s soils remain significantly wetter than usual.

 

 

 

Exchange Rates

Over the course of the week the NZ Dollar was down against the TWI and it was down against most of our key trading partners, except the Japanese Yen.

 

 

NZ Dollar versus

This Week

(20/2/20)

Last Week (13/2/20)

Last Month (20/1/20)

Last Year (20/2/19)

US Dollar

0.6390

0.6443

0.6615

0.6875

Australian Dollar

0.9571

0.9590

0.9618

0.9604

Euro

0.5911

0.5926

0.5963

0.6057

UK Pound

0.4944

0.4974

0.5088

0.5262

Japanese Yen

71.07

70.80

72.89

76.13

Chinese Renminbi

4.4689

4.4923

4.5372

4.6523

Trade Weighted Index

71.40

71.69

72.60

74.61

Source: Reserve Bank of NZ

 

Wholesale Interest Rates

Over the course of the week the 90 Day Bank Bill interest rate was down 6 basis points and the rate for 10 Year Government Bonds was down 11 basis points.  The OCR will next be reviewed on 25 March.

 

 

This Week

(20/2/20)

Last Week (13/2/20)

Last Month (20/1/20)

Last Year (20/2/19)

OCR

1.00%

1.00%

1.00%

1.75%

90 Day Bank Bill

1.16%

1.22%

1.29%

1.90%

10 Year Government Bond

1.34%

1.45%

1.53%

2.23%

Source: Reserve Bank of NZ

 

 

 

 

Nick Clark

21 February 2020