by Nick Clark, Federated Farmers Manager National General Policy
Strong growth in primary sector exports
The Ministry for Primary Industries’ latest update on primary sector exports, the Situation and Outlook for Primary Industries, is forecasting stronger than previously expected growth in export revenue.
Overall food and fibre export revenue for the year to 30 June 2022 is expected to reach $52.2 billion, up $4.5 billion (or 9.4%) on the previous year and also $1.7 billion higher than the previous forecast for 2021/22 made in December 2021.
As the Minister rightly said, “This is a tremendous result for the sector as farmers, growers, fishers, foresters, and others have continued to deliver quality products for Kiwis and overseas consumers while navigating the challenges of COVID-19”.
The report also highlighted that the primary sector contributes 81.8% of merchandise exports, 11.1% of GDP, and 13.8% of employment.
Export revenue by sector compared to the year before:
- Dairy: $21.61 billion, up 13.2%.
- Meat & Wool: $12.22 billion, up 17.6%.
- Horticulture: $6.72 billion, up 2.1%
- Forestry: $6.25 billion, down 4.3%.
- Seafood: $1.94 billion, up 9.5%.
- Arable: $255 million, down 1.9%.
- Processed food and other products: $3.21 billion, up 3.1%.
Looking further out (which is always a challenge given the vagaries of production, commodity prices, and exchange rates), the sector’s exports are forecast to grow further to $56.8 billion for the year to June 2026. Dairy exports are expected to rise to $24.6 billion but meat & wool exports are expected to slip to $11.8 billion.
Commodity prices fall but exchange rate does its job
The ANZ Commodity Price Index lost ground in May but prices rose after being adjusted for the weaker exchange rate.
The World Price Index dropped 2.8% compared to April. Dairy prices fell 4.8%, with whole milk powder leading the retreat, and is unsurprising considering the recent falls in the GDT auction. Meat and fibre prices eked out a 0.5% rise with higher prices for lamb and wool offsetting a reduction for beef. Horticulture prices also lifted 1.9% but prices for forestry (down 3.5%) and aluminium (down 12.4%) both fell.
The exchange rate was sharply lower in May. This resulted in a 2.0% rise in the NZ Dollar Index, providing support for farmgate prices.
On an annual basis, the World Price Index was up 7.8% compared to May 2021 while the NZ Dollar Index was up a much stronger 18.5%.
Dairy prices rise
This week’s Global Dairy Trade auction posted its first increase in three months, lifting 1.5% compared to the previous event three weeks ago.
The overall increase was despite whole milk powder, by far the biggest commodity by volume, dropping 0.3%, with cheddar also down 3.6%. However, skim milk powder, the second biggest by volume, was up 3.0%, anhydrous milk fat up 2.7%, butter up 5.6%, and butter milk powder up 4.5%.
The average selling price was $US4.656 and 21,435 tonnes were sold.
The GDT Price Index is 6.5% higher than at the same time last year.
Not as bad as expected
The Government’s Interim Financial Statements for the ten months to April continue to track better than expected, or perhaps more accurately less badly than expected. This is even considering the forecasts were updated at the Budget only three weeks ago.
Core Crown tax revenue came in at $87.9 billion, $1.8 billion higher than expected. Corporate tax, source deductions, and other individuals’ tax all exceeded forecasts while GST revenue was below forecast. Meanwhile, core Crown expenses were $102.8 billion, $768 million lower than expected, mainly due to timing issues.
The operating balance before gains and losses was a deficit of $9.4 billion, $3.2 billion better than forecast. This was due to higher tax revenue, lower spending, and stronger results from Crown entities and state-owned enterprises.
Net debt was $62.9 billion (18.0% of GDP), $4.3 billion more than expected. This was mainly due to unfavourable market conditions impacting the NZ Super Fund’s financial portfolio and higher Crown entity borrowings. Total borrowings were $203 billion, $6.3 billion more than forecast.
OECD on New Zealand – monetary policy needs mates.
With the economy coming under pressure from high inflation, the OECD wants the Government to ensure its fiscal policy doesn’t make it tougher for the Reserve Bank’s monetary policy.
The OECD’s June 2022 report for New Zealand observed that real GDP growth will ease to 3% in 2022 and 2% in 2023, with high inflation and rising interest rates weighing on private consumption. The report said “fiscal policy should avoid concentrating the burden of macroeconomic stabilisation on monetary policy, and support for households and businesses should be tightly targeted to those most vulnerable to high inflation”.
The OECD also wants the Government to facilitate the inflow of migrant workers to ease pressure on skill shortages and inflation, enhance competition in retail grocery sector, and strengthen the digital economy. It also remarked upon the Government’s emissions budgets and the Climate Emergency Response Fund for investments to reduce emissions.
ANZ’s monthly Truckometer for May 2022 has shown light traffic stable but heavy traffic down.
Comparing May to April, the light traffic index was up 0.1%, after rising 8.0% the previous month, while the heavy traffic index was down 1.7%, after rising 2.4% the previous month.
On an annual basis, comparing May 2022 to May 2021, the light traffic index was up 3.0% and the heavy traffic index up 0.7%.
ANZ noted the data shows the economy beginning to settle back into a rhythm, with light traffic holding up “remarkably well in light of near record high petrol prices and consumers’ stated reluctance to spend”.
Job ads keep on climbing
The latest monthly BNZ-SEEK Employment Report has shown yet another increase in job advertisements.
Comparing May to April, job ads were up 2.5% maintaining annual growth or around 15%. Heightened job ads point to exceptionally strong demand for staff, with a very low ratio of applications per advert.
The farming, animals, and conservation industry had the biggest month-on-month increase, with ads up 20% compared to April.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 9 June) show soil conditions significantly drier than usual in Matamata-Piako, South Wairarapa, much of Canterbury south of Waimakariri and all of Otago. Soil conditions are wetter than usual in Hawkes Bay, Whanganui, Nelson, Marlborough, and Hurunui.
The NZ Dollar was a little weaker for the week, down 0.3% against the Trade Weighted Index. It was down against all our major trading partners except the Japanese 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 5 points to 2.52% while the 10 year Government Bond yield was up 19 points to 3.87%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 13 July. It will likely be another 50 pointer. In the meantime, it has started consulting on its monetary policy remit, which sets out how it carries out its price stability and employment objectives, with submissions due 15 July. A quick survey can also be taken.
|This Week (9/6/22)||Last Week (2/6/22)||Last Month (9/5/22)||Last Year (9/6/21)|
|90 Day Bank Bill||2.52%||2.47%||2.14%||0.32%|
|10 Year Government Bond||3.87%||3.68%||3.86%||1.77%|
Source: Reserve Bank of NZ