Fonterra cuts forecast
Fonterra this week revised its 2021/22 forecast Farmgate Milk Price range to $9.10-$9.50 per kg milk solids (from its previous forecast of $9.30-$9.90). This reduces the midpoint of the range, which farmers are paid, to $9.30 (from $9.60).
Fonterra cited lockdowns in China due to COVID-19, the economic crisis in Sri Lanka, and the Russia-Ukraine conflict as impacting on global demand for dairy products. However, it still thinks the long-term outlook is positive.
The cut in forecast milk price is disappointing but not surprising considering the recent run of falls in the Global Dairy Trade auction. But if confirmed it will still be a record high.
It made no early prediction for its milk price forecast for the 2022/23 season, but it will probably be lower than this season’s.
Food price inflation eases
Annual food price inflation was 6.4% in April, down a bit from March’s annual increase of 7.6%, according to Statistics NZ’s monthly Food Price Index.
On a monthly basis, comparing April 2022 with March 2022, food prices were up 0.1% (also up 0.1% when seasonally-adjusted), with:
- Fruit and vegetable prices down 3.1%, with fruit down 3.3% and vegetables down 2.9%;
- Meat, poultry, and fish prices down 0.4% with beef & veal down 0.1% and mutton, lamb & hogget down 4.9%; and
- Grocery food prices up 0.6%, with bread & cereals up 0.1% and milk, cheese & eggs up 0.9%.
In addition, the ‘restaurant meals and ready-to-eat food’ sub-group was up 1.4% in the month, coinciding with this year’s large increase in the minimum wage which took effect on 1 April.
Contributing to annual food price inflation of 6.4% were:
- Fruit and vegetable prices up 9.4%, with fruit up 7.0% and vegetables up 11.2%;
- Meat, poultry, and fish prices up 8.1% with beef & veal up 9.0% and mutton, lamb & hogget up 13.8%; and
- Grocery food prices up 6.4%, with bread & cereals up 5.7% and milk, cheese & eggs up 9.0%.
ACT’s Alternative
With Budget 2022 happening next week, ACT got in early with what it would do if it held the Treasury benches.
ACT wants to end deficit spending which it sees driving inflation and making it harder for the Reserve Bank to do its job. It wants to make fiscal settings sustainable and to encourage work, savings, and investment.
ACT would cut government spending immediately (in net terms by $5.5 billion) and stop wasteful spending, reducing bureaucrat numbers back to 2017 levels. It sees defence, education, and infrastructure as high priorities for investment.
Less government spending would allow it to cut taxes to the tune of $3.2 billion. It would do this by reducing the current five personal income tax thresholds to just two, 17.5% for income under $70,000 and 28% for income over $70,000.
ACT would extend the mixed ownership model for state owned enterprises with the proceeds used to reduce debt and providing additional benefits of applying more market discipline to the businesses and deepening capital markets.
ACT would also progressively increase the NZ Super age from 65 to 67 in 2035 and then index it to life expectancy. It would also make a number of regulatory changes, like ‘serious reform’ of the RMA, ending the oil and gas ban, repealing the Zero Carbon Act, reintroducing 90 day trials, scrapping Fair Pay Agreements and the Social Insurance Scheme, liberalising genetic engineering, and introducing a Regulatory Responsibility Act.
All in all, a contrast to what we’re likely to see in next week’s Budget.
Housing market weakens
House sales volumes and prices both fell in April, according to the Real Estate Institute of New Zealand’s latest monthly Residential Property Data.
The national median house sales price in April was $875,000, down 1.7% from March and down 4.9% from its peak in November 2021. However, on an annual basis the median sales price was still 8.8% higher than in April 2021.
Auckland’s median sales price was $1.17 million, down 2.5% for the month but still up 4.5% for the year. Most regions had month-on-month declines, but there were still some large annual increases, such as in the West Coast (up 31.6%), Canterbury (up 20.8%), Waikato (up 16.2%), and Tasman (up 16.1%). On the other hand, there were annual declines in Otago (down 5.0%), Manawatu-Whanganui (down 1.6%), and Gisborne (down 0.7%).
Sales volumes dopped sharply. April’s national house sales of 4,860 was down 29.3% from March and also down 35.2% from April 2021.
The 38 median days to sell a house in April was 9 days higher than in April 2021 another indicator of a weaker housing market.
Traffic volumes up
April saw a jump in traffic volumes, according to ANZ’s monthly Truckometer.
The Light Traffic Index jumped 8.3% in April compared to March to be 1.9% higher than April 2021. The Heavy Traffic rose 2.3% for the month but is 3.6% lower than its level in April 2021.
ANZ said the data is consistent with rebounding movement of both people and goods as the impact of the Omicron outbreak wanes.
Card spending up
The value of Electronic Card Transactions jumped in April, according to Statistics, but year-on-year growth remained weak considering high inflation.
Comparing April to March, seasonally-adjusted card spending was up 7.0%. Apparel spending was up 16.8%; consumables (e.g., groceries) up 5.2%, fuel up 3.3%; durables (e.g., furniture, electronics, hardware, etc.) up 0.9%; and vehicles up 0.5%. Relaxed Covid restrictions (e.g., moving to Orange setting just before Easter) will have stimulated activity and spending
On an annual basis (comparing April 2022 with April 2021), actual card spending was up 2.9% to $8.11 billion. Non-retail (excluding services) had the biggest increase of 6.8%, followed by consumables up 6.5%, fuel up 3.9%, vehicles up 2.0%, and durables up 1.5%. There were declines for hospitality (down 4.9%), apparel (down 3.2%), and services (down 1.8%).
A 2.9% annual increase in actual card sales is well below the current level of consumer price inflation, which would indicate a ‘real’ (i.e., inflation-adjusted) decline in spending.
Migration loss grows
Statistics NZ’s latest International Migration Statistics show that with travel and border restrictions easing, more people are leaving the country.
For the year to March 2022 there was a net migration loss of 7,300 up from a 1,700 net loss for the year to March 2021, and a stark contrast to the massive 91,700 net gain for the year to March 2020.
As with previous months the migration loss was due to non-New Zealand citizens leaving, with a small gain in New Zealand citizens, although this is shrinking due to increases in New Zealanders leaving long-term and fewer arriving.
Meanwhile, its International Travel Statistics show more people are arriving and departing short-term. In March there were 66,100 arrivals (up from 16,300 in February) and 60,100 departures (up from 24,600 in February). Australia was the country with the most short-term arrivals and departures.
More beefies, fewer sheep
The final results for Statistics NZ’s Agricultural Production Survey 2021 are out and they confirm the provisional results (released last December) that showed more beef cattle but fewer sheep in New Zealand compared to 2020.
As at 30 June 2021 there were the following livestock numbers, compared to 30 June 2020:
- 25.73 million sheep, down 1.1%.
- 6.19 million dairy cattle, down 0.2%.
- 3.97 million beef cattle, up 2.1%.
- 0.81 million deer, down 2.3%
- 0.25 million pigs, up 6.0%.
And for the year to 30 June 2021 there was the following arable production, compared to the year to 30 June 2020:
- Wheat: 422,800 tonnes (down 6.8%) from 43,500 hectares (down 4.7%).
- Barley: 325,100 tonnes (down 3.7%) from 44,200 hectares (down 2.1%).
- Maize: 209,300 tonnes (up 10.1%) from 17,500 hectares (up 8.3%).
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 12 May) show soil moisture levels significantly drier than usual for this time of year across most of the western regions of the North Island, especially in western Northland, Auckland, Waikato-King Country, and around Palmerston North. In the South Island, Tasman and Banks Peninsula are significantly drier than usual. In contrast, Gisborne and Hawkes Bay remain significantly wetter than usual.
Exchange Rates
The NZ Dollar was weaker over the course of the week, dropping 2.4% against the Trade Weighted Index. It was down against all our major trading partners, except the Aussie 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 another 3 points to 2.15% but the 10 year Government Bond yield lost 1 point to 3.76%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 25 May 2022. Market pricing suggests it will be another 50 pointer.
| This Week (12/5/22) | Last Week (5/5/22) | Last Month (12/4/22) | Last Year (12/5/21) | |
| OCR | 1.50% | 1.50% | 1.00% | 0.25% |
| 90 Day Bank Bill | 2.15% | 2.12% | 1.71% | 0.37% |
| 10 Year Government Bond | 3.76% | 3.77% | 3.52% | 1.81% |
Source: Reserve Bank of NZ