Budget 2021.
The big economic news for the week was, of course, the Budget. For my account of Budget 2021 and what it means for farming click here. For the rest of the week’s economic news read on…
Dairy prices slip again.
This week’s Global Dairy Trade auction was its third consecutive fall, albeit just a small one and with prices for the commodities on offer mixed.
Overall, the GDT Price Index was down 0.2%, with the crucial whole milk powder also down 0.2%. Anhydrous milk fat was down 0.1% and butter down 2.2%. On the other hand, skim milk powder was up 0.7%, cheddar up 1.0%, and lactose up 1.6%.
The average selling price was US$4,150 and 21,140 tonnes of product were sold.
Although the GDT Price Index has declined at four of the last five auctions since mid-March, the declines have mostly been small and it remains 42.7% higher than at the same time last year and remain historically elevated.
Electricity price spike drives business expenses up.
Statistics NZ’s quarterly Business Price Indexes has shown a sharp spike in electricity prices in the March quarter, pushing prices for businesses up.
Overall, the Producer Price Index for Outputs (prices received by businesses) was up 1.2% compared to the December quarter and also up 1.2% for the year. On a quarterly basis Electricity and gas supplies output prices was up 17.4%, followed by petroleum and coal product manufacturing (up 12.2%).
Output prices for agriculture, forestry and fishing were up 1.5% for the quarter and up 0.8% for the year. It was a contrasting picture for the two main agricultural sub-industries. Output prices for sheep, beef, and grains farming were down 3.7% for the quarter (and down 6.0% for the year) while those for dairy farming were up 5.1% for the quarter (and up 3.7% for the year).
Turning to prices paid by businesses, the Producer Price Index for Inputs was up 2.1% for the quarter and up 1.8% for the year. Again, the industry with by far the biggest increase was electricity and gas supplies, surging 26.7%.
Input prices for agriculture, forestry and fishing were up 1.3% for the quarter and up 1.7% for the year. Sheep, beef, and grains farmers was up 1.1% for the quarter (and down 1.2% for the year) and dairy farmers was up 2.0% for the quarter (and up 6.1% for the year). This indicates squeezing margins, even for dairy farmers.
Farm expenses up.
The same data release showed a 1.0% increase in the Farm Expenses Price Index for the March 2021 quarter compared to the December quarter. On an annual basis, farm expense prices were up 0.9% compared to March 2020.
Compared to the December 2020 quarter, prices fell for only two input costs, interest rates (down 0.6%) and weed and pest control (down 0.1%). These were more than offset by increases for the remaining inputs, but especially fuel (up 12.9%) and electricity (up 5.8%).
On annual basis, compared to the December 2019 quarter, prices were down for interest rates (down 11.5%), fuel (down 3.7%), and rent and hire (down 0.5%). The largest annual increases were for grazing, cultivation, harvest, and purchase of animal feed (up 7.6%), electricity (up 7.5%), and weed and pest control (up 6.8%).
Manufacturing and services expanding.
The manufacturing and services sectors were both in expansion mode in April, according the BNZ-BusinessNZ Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI).
The seasonally adjusted PMI for April was 58.4 (a PMI reading above 50 indicates expansion while below 50 indicates decline). While this was 5.2 points down from March, it was still the second highest result since July 2020 when New Zealand came out of lockdown. Production and New Orders were the main drivers, but all the sub-index values scored above 50.
The PSI for April was 61.2, up 8.3 points from March. This was the first time since the survey began in June 2007 that the services sector recorded a post-60 result. Business NZ noted that international PSI’s are also scoring over 60, including those for Australia, the UK, and the US. BNZ also noted that supplier deliveries remain of concern and will likely push up prices.
Migration and travel slump continues.
March has seen a continuation of mere trickles in migrants and visitors, according to Statistics NZ’s monthly International Migration Statistics and International Travel Statistics. This is of course no surprise given the ongoing border restrictions.
Turning first to migration, in March 2021 there were 2,500 migrant arrivals (down 85% on March 2020) and 1,600 migrant departures (down 73%), leaving a net migration gain of around 800. For the year to March 2021 there were 36,400 arrivals (down 80% on the year to March 2020) and 29,800 departures (down 68%), leaving an annual net migration gain of only 6,600, down from the previous year’s huge gain of 91,900.
Meanwhile, there were just 4,600 overseas visitor arrivals in March 2021 (down 97% on March 2020) and 2,900 New Zealand residents returned from an overseas trip (down 98%). For the year ended March 2021 there were only 52,700 overseas visitor arrivals (down by 3.6 million) and 38,700 New Zealand resident traveller arrivals (down by 3.0 million).
Next month’s data will see a partial recovery in visitor numbers with the trans-Tasman bubble having started on 19 April.
Next week.
On Wednesday the Reserve Bank reviews monetary policy settings and releases its quarterly Monetary Policy Statement, including its updated economic forecasts. It will almost certainly make no changes to the Official Cash Rate, Large Scale Asset Purchases Programme, or the Funding for Lending Programme. Of more interest will be whether there will be any clues as to when it will start normalising monetary policy.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 20 May) show that although there has been welcome rain in many areas, soil conditions continue to be significantly drier than usual over much of the east coasts of both islands, particularly Hawkes Bay to Wairarapa, Hurunui, Banks Peninsula, and inland Mid and South Canterbury. An exception is Nelson and Marlborough Sounds where soils are much wetter than usual.
Exchange Rates
The NZ Dollar was down 0.2% for the week against the Trade Weighted Index, weakening against all our major trading partners although only barely against the US and Aussie dollars.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was down 4 points to 0.33%. However, the 10 year Government Bond yield was down 2 points to 1.88%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 26 May.
| This Week (20/5/21) | Last Week (13/5/21) | Last Month (20/4/21) | Last Year (20/5/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 0.25% |
| 90 Day Bank Bill | 0.33% | 0.37% | 0.34% | 0.25% |
| 10 Year Government Bond | 1.88% | 1.90% | 1.63% | 0.65% |
Source: Reserve Bank of NZ