by Nick Clark, Group Manager National Policy
Happy New Year and welcome back. Here is Feds’ first economic update for 2022. Plenty in it as it’s been four weeks since our last one for 2021.
Just before Christmas we released results from our November 2021 Banking Survey. Overall, they were relatively positive, with an improvement in farmer satisfaction (breaking a long run of declines) and a reduction in those feeling under pressure. However, mortgage interest rates are starting to rise.
The key results follow…
- 67% said they’re satisfied with their bank relationship, up 5.5 points from May’s survey and a break in what had been a steady erosion in satisfaction since 2017 (when it was over 80%). Sharemilkers were the most satisfied and Arable farmers least satisfied.
- 13.5% said they’ve been feeling undue pressure from their banks, down 4.4 points. Arable were feeling the most pressure (22.6%) while Sharemilkers (10.6%) and Meat & Wool (11.7%) coming under the least pressure. All industry groups had drops in pressure perceptions.
- 26% said their lending conditions have changed over the past six months, up 2 points. Of those with changed conditions, 18% were tougher and 8% easier.
- 57% said communication with their banks had been good or very good, down 1 point. Like overall relationship satisfaction, sentiment has been eroding steadily over recent years.
- 62% had a budget for the current 2021/22 season and 24% had a budget for the next 2022/23 season. Sharemilkers were by far the most likely to have budgets. Meat & Wool the least likely (excluding supporters).
- Average mortgage interest rate was 3.9% up from 3.8% in May’s survey. 89% were paying mortgage interest rates of less than 5% with no-one paying more than 10%. The slight uptick in the average mortgage interest rate might be an early sign of higher lending rates arising from recent and forecast increases in the OCR.
- Average overdraft interest rate was 6.3%, unchanged. 20% were paying overdraft interest rates of less than 5%, and 3.5% paying more than 10%.
We asked a couple of one-off questions re use of cash:
- Use of cash for farm business transactions – 24% use cash for at least some farm business transactions, with cash use highest for Sharemilkers and lowest for Arable. 55% reported cash use to have been unchanged over recent years, with 38% saying it had reduced and 3% saying it had increased.
- Use of cash for personal transactions – 82% use cash for at least some personal transactions. 46% report cash use unchanged over recent years, with 45% saying it had reduced and 8% saying it had increased.
- Regardless of whether cash is used for business or personal transactions 74% considered it important for cash to remain available, 13% not important, and 12% were neutral.
- 79% of farmers had a mortgage with an average value of $3.6 million and median value of $2.1 million. Dairy farms had the highest average mortgage ($4.5 million) but Arable had the highest median mortgage ($3.3 million).
- 75% of farmers had an overdraft with an average value of $181K and median value of $70K. Other farms had the highest average overdraft ($267K) but arable farms had the highest median mortgages ($200K).
- ANZ had the biggest market share for both mortgages and overdrafts.
- Farmers were most satisfied with Rabobank and Westpac.
Ag debt falls
Meanwhile, the Reserve Bank’s monthly Sector Lending Statistics has shown a continued steady decline in the quantum of agricultural debt.
Agricultural debt was $61.98 billion in November 2021, down $177 million on October and down $734 million (or 1.2%) compared to November 2020.
In contrast to agriculture’s annual decline in lending, housing lending continued to grow apace, up 11.0%. Business lending was up 5.6% and personal consumer lending down 7.5%.
Agricultural credit was comprised of lending to the following sectors:
- Dairy cattle farms: $37.45 billion, down $175 million for the month and down $1.50 billion (3.9%) for the year.
- Sheep, beef cattle, and grains farms: $15.20 billion, down $14 million for the month but up $13 million (0.1%) for the year.
- Horticulture: $6.22 billion, unchanged for the month but up $649 million (11.6%) for the year.
- Other agriculture on farm: $2.36 billion, up $3 million for the month and up $52 million (2.3%) for the year.
GDT down and up again
Two Global Dairy Trade auctions have been held since the last economic update – on 21 December 2021 and on 4 January 2022.
On 21 December the auction broke a long run of increases, with the GDT Price Index declining 1.5% due to a 3.3% drop for whole milk powder. All the other commodities increased.
On 4 January the auction clawed back some of this loss, with the Price Index up 0.3% overall. Whole milk powder was unchanged and anhydrous milk fat dropped 0.7% but there were gains for skim milk powder (up 1.0%), butter (up 0.3%), cheddar (up 4.9%), and butter milk powder (up 1.0%).
The average selling price at the latest auction was $US4,247 and 30,685 tonnes of product were sold.
The GDT Price Index is 25.4% higher than at the same time last year.
Commodity prices remain strong
The ANZ World Commodity Price Index eased 0.2% in December 2021, as stronger prices for dairy, meat, and aluminium were outweighed by lower prices from forestry and horticulture.
Dairy prices were up 1.5%, with global milk supplies remaining tight, while meat and fibre prices were up 0.5%, with firmer lamb and beef prices but lower wool prices. Horticulture prices were down 4.6% and forestry prices down 4.9%. Aluminium prices were up 2.5%.
A lower exchange rate in December (with the Trade Weighted Index down 2.8%) meant the NZ Dollar Index gained 3.1% for the month to extend its record high.
On an annual basis, comparing December 2021 with December 2020, the World Price Index was up 23.7% while the NZ Dollar Index was up 28.0%.
Agricultural Production Survey.
Livestock numbers have mostly increased, according to Statistics NZ’s provisional Agricultural Production Statistics for the year to 30 June 2021:
- Sheep: 25,968,800, down 0.2%.
- Dairy cattle: 6,281,800, up 1.3%
- Beef cattle: 4,024,600, up 3.7%
- Deer: 842,000, up 1.0%
- Pigs:242,600, up 3.4%
Meanwhile, the amounts of grains harvested:
- Wheat: 441,000 tonnes (down 2.8%) from 45,100 hectares (down 1.3%).
- Barley: 323,900 tonnes (down 4.1%) from 43,800 hectares (down 2.9%)
- Oats: 29,000 tonnes (up 24.5%) from 4,600 hectares (up 15.0%)
- Maize grain: 200,400 tonnes (up 5.4%) from 17,500 hectares (up 8.7%)
- Other cereal grain: 21,700 tonnes (up 58.4%) from 3,400 hectares (up 47.8%).
The final results from the survey will be released in May.
Trade deficit widens further.
Exports were up in November but imports were up even more according to Statistics NZ’s monthly Overseas Merchandise Trade Statistics.
In November 2021 goods imports were worth $6.73 billion, up $1.81 billion (or 36.8%) from November 2020. Most commodities recorded big increases. Mechanical machinery and equipment jumped 36.0%; vehicles, parts, and accessories leapt 31.8%; and petroleum imports soared 52.5%.
Goods exports also rose, although not as strongly as imports, up 12.9% to $5.86 billion. Dairy and meat led the way, with movements in key export commodities:
- Milk powder, butter, and cheese up 14.4% to $2.06 billion.
- Meat and edible offal up 17.2% to $660 million.
- Logs, wood, and wood articles up 2.7% to $429 million.
- Fruit up 0.6% to $82 million.
- Preparations of milk, cereals, flour, and starch (largely infant formula) down 36.4% to $144 million.
- Wine up 46.0% to $213 million.
In addition, exports of eggs, honey, and other edible animal products were down 17.3% to $41 million; live animals down 23.5% to $49 million; and wool up 5.6% to $47 million.
The net result was a monthly goods trade deficit of $864 million. This was a blowout from November 2020’s $277 million surplus and it was also bigger than November 2019’s deficit of $786 million.
For the year ended November 2021, goods exports were worth $62.77 billion, up 4.5% compared to the year ended November 2020. Looking at the key export commodities:
- Milk powder, butter, and cheese up 2.7% to $16.63 billion.
- Meat and edible offal up 5.1% to $8.58 billion.
- Logs, wood, and wood articles up 24.7% to $5.58 billion.
- Fruit up 1.3% to $3.95 billion.
- Preparations of milk, cereals, flour, and starch down 18.4% to $2.02 billion.
- Wine down 1.1% to $1.97 billion.
In addition, exports of eggs, honey, and other edible animal products were down 3.7% to $506 million; live animals up 8.5% to $487 million; and wool was up 15.6% to $427 million.
On an annual basis goods exports to China were up 19.6% to $19.98 billion, almost one third of total goods exports. Australia was a distant second with $7.93 billion, down 2.6%.
Goods imports for the year ended November 2021 were worth $68.81 billion, up 21.2% compared to the year ended November 2020. Imports of vehicles, parts, and accessories were up 57.9% while petroleum imports were up 9.0% Fertiliser imports were up 32.7%.
Annual goods imports from China were up 29.8% to $16.32 billion, nearly a quarter of total goods imports. Australia was in second place at $7.88 billion, up 15.5%.
There was an annual goods trade deficit of $6.04 billion. This was a widening from a $4.92 billion deficit for the year ended October 2021, and a stark contrast to the $2.32 billion surplus for the year ended November 2020.
Farm sales jump
November was a strong month for farm sales, according to the Real Estate Institute of NZ’s Rural Property Statistics.
There were 361 farm sales in the three months to November 2021, up 39.9% on the 258 farm sales for the three months to October 2021. Despite this boost sales were 19.1% below those for the three months to November 2020 but overall, for the full year to November 2021, there were 1,616 farm sales, up 17.2% on the year to November 2020.
Prices also strengthened. The median price per hectare for all farms sold in the three months to November 2021 was $37,710, up 10.3% on the three months ended October 2021 and up 35.9% on the three months ended November 2020.
Meanwhile, the REINZ All Farm Price Index, which adjusts for differences in farm size, location, and farming type, increased 4.6% in the three months to November 2021 compared to the three months to October 2021 and was up 21.5% on the three months to November 2020.
Business confidence slips further but agriculture’s improves
2021 ended on a flat note for businesses, according to ANZ’s December Business Outlook Survey. But farmers were feeling a bit happier.
Headline business confidence slipped 6.8 points from November to a net 23.2% expecting general economic conditions to worsen over the next 12 months. Agriculture remained the most pessimistic sector with a net 34.6% expecting conditions to worsen, but this was a 6.3 point improvement from November’s survey.
There was also slippage for own activity, a better predicter for GDP growth. In December a net 11.8% expected their own activity to increase, down 3.2 points from November’s survey. Agriculture’s sentiment was evenly balanced with an equal proportion of optimists and pessimists but this was a 22.7 point improvement. The improvement in farmer sentiment is a reaction to the lift in Fonterra’s forecast farmgate milk price and ongoing high meat prices.
It’s concerning to see cost pressures continuing to be acute, pricing expectations remaining at near record levels, and inflation expectations edging up to 4.4%. Investment, employment, ease of credit, and profit expectations all slipped from November.
House consents strong
There were a record 48,522 new homes consented in the year ended November 2021, according to Statistics NZ’s monthly Building Consents Issued. November’s total of 4,688 house consents was also a new monthly record.
The month’s tally was up a seasonally-adjusted 0.6% for the month and the annual tally was up 25.6% on the previous year to November 2020.
November 2021’s value of non-residential building work consented $783 million, up 11.4% on the same month last year, with farm building consents worth $34 million, up 52.0%. Meanwhile the annual value of non-residential consents was $8.10 billion, up 16.7% from the previous year. The annual value of farm buildings was $304 million, up 7.2%.
Job ads up
The BNZ-SEEK Employment Report has registered a 1.0% increase in job advertisements in December 2021 compared to November 2021 and an annual 32.0% increase compared to December 2020.
On a monthly basis job ads were up for 9 out of 15 regions and they were up for 18 out of 28 industries. The farming, animals, and conservation industry had a 13% increase – the third largest gain (behind sport & recreation and hospitality & tourism).
Consumer confidence recovers
After slipping each month from June to November, consumer confidence recovered a little in December, according to ANZ-Roy Morgan’s monthly Consumer Confidence Index.
The overall consumer confidence index for December 2021 was 98.3, up 1.7 points compared to the previous month. A score below 100 means more pessimists than optimists.
The proportion of people who believe it is a good time to buy a major household item rose 6 points to a net 0%, after three months in the red. Inflation expectations were little changed at 5.6%. House price inflation expectations fell another 0.6 points to 5.3%.
Keep an eye on your email inboxes for your invitation to participate in Federated Farmers’ six-monthly Farm Confidence Survey. As well as the opportunity to go in a draw for a $500 grocery voucher, the survey results help us get a read on how farmers are doing and what they’re concerned about, both of which are crucially important for our advocacy to government.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 13 January) show much of the country’s soils being drier than usual for this time of the year, especially across the northern half of the North Island, the West Coast of the South Island, and Southland – no surprise given hot summer weather. However, soils are significantly wetter than usual in coastal Rangitikei and Kaikoura-Cheviot.
The NZ Dollar was stronger week, increasing 0.4% against the Trade Weighted Index. It was up against the US Dollar and the Renminbi, almost unchanged against the Australian Dollar, and down a little against the Euro, the Pound, and the Yen.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was up 3 points to 0.89% and the 10 year Government Bond yield was up 7 points to 2.47%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 23 February 2022. Another increase is likely.
|This Week (13/1/22)||Last Week (6/1/22)||Last Month (13/12/21)||Last Year (13/1/21)|
|90 Day Bank Bill||0.97%||0.98%||0.89%||0.27%|
|10 Year Government Bond||2.54%||2.52%||2.47%||1.10%|
Source: Reserve Bank of NZ