by Nick Clark, Federated Farmers Manager General Policy
GDT surges
Dairy prices leapt at this week’s Global Dairy Trade auction, up a whopping 15.0% at this week’s auction.
Whole milk powder, by far the biggest commodity by volume, led the way in jumping 21.0% compared to a fortnight ago. Almost all the other commodities also posted healthy gains with skim milk powder up 3.5%, anhydrous milk fat up 7.4%, butter up 13.7%, cheddar up 1.3%, and lactose up 4.9%. The only commodity to fall was butter milk powder, down 0.3%.
Overall, the average selling price was US$4,231 and 25,554 tonnes were sold. Chinese demand was the main pull factor. Apparently feed prices in China are very high making milk production there more expensive.
This is the eighth consecutive increase in the GDT Price Index and the tenth out of the eleven auctions, going back to mid-September. As a result of the latest jump, the GDT Price Index is 39.3% higher than the same time last year. It has not been this high since March 2014.
Economists are now lifting their farmgate milk price forecasts. For example, ANZ and BNZ have lifted their forecasts for the current 2020/21 season to $7.70 per kgMS and Westpac has lifted theirs to $7.90 per kgMS.
Commodities up in February
The ANZ World Commodity Price Index increased 3.3% in the month of February to its highest level since April 2014.
The gains were felt across sectors but dairy products rose the most, up 4.5%. Meat and fibre posted a welcome gain, up 3.5%. Horticulture prices were unchanged (on little volume) while forestry was up 3.2% and aluminium up 3.8%.
The NZ Dollar appreciated in February, knocking back some of the world price increase. This meant that in local currency terms the index gained 2.7%.
On an annual basis, compared to February 2020, the World Price Index was up 11.1% and the NZ Dollar Index was virtually unchanged, eking out a 0.1% increase.
Exports take a dive
Slumps in dairy and meat exports drove down the value of goods exports in January, according to Statistics NZ’s monthly Overseas Merchandise Trade Statistics.
Total goods exports were worth $4.19 billion in January 2021, down 10.4% on January 2020 and the fifth monthly drop in a row. Movements for key commodities follow:
- Milk powder, butter, and cheese down 10.8% to $1.43 billion, with exports to the United States down sharply but exports to China up.
- Meat and edible offal down 17.9% to $648 million, with steep drops for both sheep meat (down 17%) and beef meat (down 20%).
- Logs, wood, and wood articles up 4.1% to $319 million.
- Fruit up 16.6% to $78 million.
- Preparations of milk, cereals, flour, and starch (largely infant formula) down 40.8% to $92 million.
- Wine down 8.2% to $126 million.
In addition, live animal exports were down 1.5% to $31 million; eggs, honey, and other edible animal products up 9.7% to $28 million; and wool was down 12.1% to $32 million.
Goods imports were also down 5.0% to $4.82 billion in January 2021 compared to January 2020. The drop was mainly due to a 51.9% drop in petroleum imports (these are often ‘lumpy’ coming in large, irregular shipments).
The net result was a monthly goods trade deficit of $626 million, which was up from a $396 million deficit for January 2020.
For the year ended January 2021, goods exports were worth $59.46 billion, down 1.3% compared to the year ended January 2020. Looking at the key export commodities:
- Milk powder, butter, and cheese down 1.3% to $15.65 billion.
- Meat and edible offal down 3.0% to $7.97 billion.
- Logs, wood, and wood articles down 9.6% to $4.52 billion.
- Fruit up 16.3% to $3.95 billion.
- Preparations of milk, cereals, flour, and starch up 5.2% to $2.43 billion.
- Wine up 6.4% to $2.00 billion.
In addition, live animal exports were up 55.2% to $469 million; eggs, honey, and other edible animal products up 45.0% to $544 million; but wool was down 30.2% to $367 million.
Goods imports for the year ended January 2021 were worth $56.71 billion, down 11.6% compared to the year ended January 2020. The biggest drop was for petroleum products, down 38.5%, while vehicles was down 23.1%.
On an annual basis, the net result was a goods trade surplus of $2.75 billion. This was down from $2.94 billion for the year ended December 2020, but it is still quite a turnaround from the $3.93 billion deficit for the ended January 2020.
Terms of trade rises on falling prices
Prices for exports and imports fell in the December quarter, but with import prices falling faster the terms of trade posted a 1.3% increase. Put simply this means New Zealand can buy more imports for a given amount of exports.
Statistics NZ’s quarterly International Trade Statistics showed export prices falling 0.4% in the December 2020 quarter. Prices for dairy products dropped 2.6% but meat prices were up 0.2%, breaking a run of three consecutive quarterly drops. Prices rose 2.7% for forestry products and 8.9% for fish and fish preparations. Wool prices slipped a further 1.7%, the fifth consecutive quarterly drop.
Meanwhile, falling crude oil prices contributed to a 1.7% drop in goods import prices. The main downward driver was petroleum and petroleum products where prices fell 5.8%.
On an annual basis, comparing December 2020 with December 2019, goods export prices were down 6.6%. Dairy prices were down 10.4% and meat prices were down 16.0%. But falling goods import prices (down 5.0%) means the terms-of-trade was down only 1.7% on an annual basis.
Turning to trade volumes, the volume of goods traded lifted despite ongoing freight challenges. On a seasonally-adjusted basis exports lifted 3.3% for the quarter and imports gained 6.5%.
The services terms of trade also increased 2.8% with export prices up 2.4% and import prices down 0.5%.
Government finances continue to improve
The Government’s interim Financial Statements for the seven months ended 31 January 2021 continue to show the position and performance of the Crown continue to be stronger than forecast in last December’s Half Year Economic and Fiscal Update.
Core Crown tax revenue was $53.6 billion, $1.77 billion more than expected, while core Crown expenses were $60.88 billion, $502 million less than expected. The higher tax revenue higher and lower spending flowed through to the operating balance before gain and losses which was a $4.45 billion deficit, $2.87 billion better than expected.
With a smaller than expected deficit, debt was also lower than expected, with net core Crown debt of $100.36 billion (31.3% of GDP), $4.49 billion lower than expected.
Building consents near record high
In January 2021 3,025 new dwellings were consented, taking the annual number for the year ended January 2021 to 39,881, according to Statistics NZ’s monthly Building Consents Issued statistics.
The annual number of residential consents was up 5.8% on the year to January 2020 and is sitting just 144 off the record high of 40,025 set in February 1974 at the peak of the last major national house building boom. The increase is encouraging to boosting much needed supply, although to put the near eclipse of the record into context New Zealand’s population is some 60% higher today than it was in 1974.
The value of the nearly 40,000 residential building consents was $16.65 billion for the year to January 2021, up 5.1% on the year to January 2020.
Turning to non-residential buildings, $7.03 billion of consents were issued for the year to January 2021, down 5.8% on the year to January 2020. The value of consents for farm buildings was $283 million, up 0.9% for the year.
Employment static in January
Job numbers were virtually unchanged in January 2021 according to Statistics NZ’s Monthly Employment Indicators.
In January 2021 there were a total of 2.189 million filled jobs across all industries, down 57,779 on December 2020. That seems a big drop but when seasonally-adjusted the drop was only 428 (or 0.0%) – hence ‘virtually unchanged’. On an annual basis, the total number of jobs was up by 4,840 (or 0.2%).
In actual terms there were 107,926 filled jobs in agriculture, forestry, and fishing, down 7,567 on December 2020. December is the peak month for employment in agriculture, forestry, and fishing so a decline in January is common. However, employment in the sector is also down for year – down 741 (or 0.7%) – despite or perhaps because of acute labour shortages.
The sectors with the biggest annual increases in filled jobs were health care and social assistance (up 10,828) and construction (up 9,677). Wellington was the region with the biggest annual increase (up 4,475).
The number of enterprises on the Stats NZ business register (a register of all economically significant enterprises in New Zealand) in January 2021 was 536,070, down 1,767 (or 0.3%) from December 2020.
Consumer confidence slips
The monthly ANZ-Roy Morgan Consumer Confidence Index showed confidence falling 0.7 points in February to 113.1, sitting below the long-term average of 120.
The proportion of people who believe it is a good time to buy a major household item, a key retail indicator, fell 1 point. Inflation expectations remain high at 4.6%. Expected house price inflation expectations continued to rise to hit an annual rate of 7.5%
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 4 March) show much of the North Island’s soils significantly dryer than usual, except the Far North. The driest areas are in South Waikato, Eastern Bay of Plenty, and Wairoa. The South Island’s soils are mostly in the more ‘normal’ range although with some dryer patches in Canterbury and in eastern Southland. They are a bit wetter than usual in Tasman, the West Coast and southern Fiordland.
Exchange Rates
The NZ Dollar gave up some of last week’s big gains, down 1.6% against the TWI. It was down against all our key trading partners, albeit only a little against the Australian Dollar.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was up 2 basis points. After peaking at 2.02% on Friday 26 February, the 10 year Government Bond yield dropped sharply on Monday (down 26 basis points to 1.76%) and was back to 1.80% on Thursday.
The Reserve Bank will next review monetary policy settings (including the OCR) on 14 April.
| This Week (4/3/21) | Last Week (25/2/21) | Last Month (4/2/21) | Last Year (4/3/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 1.00% |
| 90 Day Bank Bill | 0.31% | 0.29% | 0.28% | 0.77% |
| 10 Year Government Bond | 1.80% | 1.79% | 1.35% | 0.95% |
Source: Reserve Bank of NZ