Record high for commodity prices.
The ANZ Commodity Price Index has had another positive month, with the World Price Index up 1.3% for the month of May and up 24.4% for the year. The Index has risen for eight consecutive months and it has been pushed to a new record high (at least since the Index began in 1986).
Prices of dairy products, which comprise 41% of the Index, were broadly stable, up 0.2% for the month. Stronger prices for skim milk powder, butter, and cheese were offset by weaker prices for whole milk powder. It was the other non-dairy commodities which drove the month-on-month increase, with meat and fibre up 1.4%, horticulture up 1.7%, forestry up 3.3%, and aluminium up 5.6%.
When adjusted for a stronger exchange rate, the New Zealand Dollar Index was up 1.0% for the month and it was up 7.9% for the year – also to a new record high.
Terms of trade stable.
Statistics NZ’s International Trade Statistics showed prices received for goods exports and prices paid for goods imports both falling by 0.8% in the March 2021 quarter compared to the December 2020 quarter.
This resulted in a near unchanged merchandise terms of trade (up 0.1%) at near record highs.
Export prices for dairy products were down 2.4% for the quarter and meat prices were down 1.5%, but forest product prices were up 7.0%.
Turning to volumes, goods export volumes fell a seasonally-adjusted 1.9% for the quarter while goods import volumes rose 9.6%. Dairy export volumes were up 2.8% but meat volumes were down 2.5%. Forest product volumes were up 2.4%.
Combining the effects of prices and volumes resulted in a 1.9% drop in quarterly goods export values to $13.96 billion, while quarterly import values were up 7.9% to $14.89 billion.
Dairy and meat rule our exports.
The same statistics also starkly show the impact of COVID-19’s decimation of international tourism, with dairy becoming by far our biggest export earner, followed by meat.
For the year to March 2021, total exports of goods and services amounted to $72.6 billion, down $14.3 billion (or 16.5%) on the previous year.
Travel exports, which comprises visitor spending in New Zealand, slumped 63.1% to $5.82 billion and transportation exports, revenue associated with carrying goods and people to New Zealand, was also down 60.1% to $1.33 billion.
There were also smaller drops in exports of dairy products (down 3.1% to $16.04 billion) and meat (down 4.8% to $7.90 billion). Wood (up 2.1% to $4.78 billion) and fruit (up 11.9%) enjoyed increases.
GDT down again.
Dairy prices slipped again at this week’s Global Dairy Trade auction, the fifth fall out of the last six trading events.
The GDT Price Index was down 0.9%. Most commodities fell, with both whole milk powder and skim milk powder down 0.5%, anhydrous milk fat down 0.8%, butter down 5.4%, butter milk powder down 7.5%, and lactose down 1.6%. The only product to increase was cheddar, up 0.5%.
The average selling price was $US4,128 and 22,825 tonnes were sold.
The GDT Price Index has lost 5.2% since its peak at the start of March. Nevertheless, prices remain high by historic standards and the Price Index is 41.3% higher than at the same time last year.
The squeeze continues.
Agricultural debt continued to drop in April, according to the Reserve Bank’s monthly Sector Lending Statistics.
In April 2021, agricultural lending was $62.04 billion, down $227 million on March, and it was down $762 million on April 2020.
Dairy continued to bear the brunt of the debt squeeze, but lending for sheep and beef and for horticulture lending were also both down for the month. To elaborate:
- Dairy cattle farming: $38.23 billion, down $154 million for the month and down $1.61 billion (or 4.0%) for the year;
- Sheep, beef cattle, and grains farming: $15.06 billion, down $38 million for the month but up $31 million (or 0.2%) for the year;
- Horticulture: $5.69 billion, down $39 million for the month but up $473 million (or 9.1% for the year; and
- Other agriculture on farm: $2.38 billion, up $6 million for the month and up $22 million (or 0.9%) for the year.
Except for housing, where annual lending growth accelerated to 11.0% for the year to April, all sectors continued to have annual drops in lending. As well as agriculture’s 1.5% decline, business lending was down 5.3%, and personal consumer lending was down 2.4% (although it was up for the month).
Business confidence slips, agriculture’s slumps.
Business confidence slipped as May progressed, according to ANZ’s monthly Business Outlook Survey.
Compared to the preliminary May read, headline business confidence was 5.2 points lower at +1.8%, while firms’ own activity was also 5.2 points lower at +27.1%. Both were still higher than April though (up 3.8 points and up 4.9 points respectively). The underwhelming Budget from a business perspective might help explain some of the drop.
Agriculture was the most pessimistic sector with a net 17.4% of respondents believing general economic conditions would worsen over the next twelve months, slumping 27.9 points from April when there were more optimists than pessimists. Meanwhile, a net 8.7% believe their own activity will increase, down 17.6 points.
Agriculture’s gloom seems strange given strong commodity prices but ANZ thinks worsening dry conditions may have contributed to the slump in farmer sentiment. We also note that farmers are deeply worried about the tsunami of government regulation and policy changes, which is showing no sign of letting up.
Consumer confidence slips.
Consumer sentiment was also slightly weaker in May, according to the ANZ-Roy Morgan Consumer Confidence Survey.
The Consumer Confidence Rating for May 2021 was 114.0, down 1.4 points from April.
Perceptions of general economic conditions also dipped back into negative territory, with a net 1% considering general economic conditions to be bad versus good. And the proportion of people who think they’ll be better off this time next year also slipped 4 points to a net +27%.
More positively, a net 19% consider this to be a good time to buy a major household item, up 1 point. Inflation and house price expectations also slipped slightly, although both remain elevated at 4.4% and 5.9% respectively.
Government finances continue to improve.
The Government’s Financial Statements for the 10 months ended 30 April 2021 show an improving fiscal position relative to forecasts.
The Crown’s tax revenue came in at $79.12 billion, $1.97 billion better than expected in last month’s Budget Economic & Fiscal Update and overall core Crown revenue was $84.61 billion, $2.08 billion better than expected. Revenue from all types of tax were higher than expected on the back of better economic conditions.
Meanwhile, core Crown expenses were $88.28 billion, $0.70 billion less than expected. The net result was an operating deficit before gains and losses of $5.05 billion, $3.57 billion less than expected.
Net core Crown debt was $2.57 billion lower than expected at $107.51 billion (33.9% of GDP).
House building consents a record high.
Statistics NZ’s Building Consents Issued statistics showed there were 3,994 residential building consents in April (84% higher than April 2020’s Covid-impacted result). This saw annual consents for the year to April 2021 hit 42,848, up 15.2% on the year to April 2020, and setting a record high since records began in the 1960s. The annual value of residential consents was $15.84 billion, up 16.3%.
There was also strong annual growth in the value of non-residential consents, up 17.0% to $7.66 billion. The value of farm buildings consented was $291 million, up 10.0%.
Although consents are running hot, the building sector is subject to supply constraints, including for labour and materials. Longer term, reductions in immigration should reduce demand for new housing.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 3 June) show the impacts of last weekend’s heavy rain and flooding in Canterbury. Much of the region’s soils have turned from being significantly drier than usual for this time of year to significantly wetter than usual, although there is a pocket around Cheviot where soils remain much drier than usual. The east coast of the North Island from Hawkes Bay to Wairarapa also remains significantly drier than usual.
The NZ Dollar was down 0.9% for the week against the Trade Weighted Index, and it was down against all our key trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was down 1 point to 0.32%. The 10 year Government Bond yield was down 11 points to 1.77%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 14 July.
|This Week (3/6/21)||Last Week (27/5/21)||Last Month (3/5/21)||Last Year (3/6/20)|
|90 Day Bank Bill||0.32%||0.33%||0.36%||0.26%|
|10 Year Government Bond||1.77%||1.88%||1.65%||0.86%|
Source: Reserve Bank of NZ