Fonterra milk price good news for farmers and for New Zealand.
With the 2021/22 season well underway, Fonterra has increased and narrowed its forecast farmgate milk price to $7.90-$8.90 per kgMS, up from its previous forecast $7.25. The mid-point is up from $8.00 to $8.40.
Fonterra observed that the $8.40 would equal the highest farmgate milk price paid by the co-op. It also said an $8.40 milk price would be worth almost $13 billion to regional New Zealand.
Fonterra also retained its 2021/22 earnings guidance of $25-40 cents per share.
Strong prices is not just a dairy story, with red meat and grains prices also strong. Last week lamb slaughter prices were $9.65 per kg in the North Island and $9.35 in the South Island, while mutton prices well over $6.70 and $6.75 per kg respectively.
These prices are over 34% higher than at the same time last year. Coarse wool prices are up around 20% compared to the same time last year, albeit off a low base, while grains prices have also lifted steadily since March.
These prices are a great boost for farmers. They’re also a great boost for regional economies given the ongoing economic costs of the pandemic and its associated restrictions, especially the loss of international tourists – and Aucklanders.
While the sun is out on the income side there are a few dark clouds from surging input prices (e.g., fertiliser, fuel, and electricity), scarcer and more expensive labour, inexorably rising overheads (e.g., council rates), and the prospect of higher interest rates. All threaten to hike costs of production and with farmers ‘price takers’ they threaten to erode margins too.
Combined with concern about government policy and regulation this explains why farmers remain pessimistic compared to other sectors.
Business confidence dropped in October according to ANZ’s Business Outlook Survey on the back of ‘sky high’ cost expectations and ‘unheard of’ pricing intentions.
Overall, a net 13.4% of respondents expected general economic conditions to worsen over the coming 12 months, down 6.2 points from September’s final results and also down 4.8 points from October’s preliminary results released earlier in the month. Agriculture was by far the most pessimistic sector with a net 45.0% expecting worse conditions, down a whopping 26.8 points.
Own activity expectations were still positive, with a net 21.7% of respondents overall expecting their activity to increase, up 3.5 points from September but down 4.5 points from October’s preliminary results. For agriculture, a net 15.0% expect their activity to increase, up 1.4 points from September.
Cost and pricing pressures were very strong, with a net 87.2% of businesses expecting costs to rise (and a net 90.0% of agricultural respondents). A net 65.5% expect to increase their prices but this was much lower for agricultural respondents (price takers) at only a net 15.0%. That would explain why more agricultural respondents expect lower profitability with a net 35.0% expecting it to reduce (up from a net 22.7% in September).
Import surge continues.
September 2021 saw the third successive month of record imports, resulting in a record trade deficit, according to Statistics NZ’s Overseas Merchandise Trade Statistics.
In September 2021 goods imports were worth $6.57 billion, up $1.54 billion (or 30.5%) from September 2020. Vehicles, parts, and accessories leapt 43.1%, although petroleum and products were down 0.4%. Fertiliser imports were up 183.1%.
Goods exports also rose, although not as strongly, up 9.6% to $4.40 billion. Movements in key export commodities follow:
- Milk powder, butter, and cheese up 16.6% to $904 million.
- Meat and edible offal up 21.6% to $533 million.
- Logs, wood, and wood articles down 9.3% to $369 million.
- Fruit up 8.9% to $332 million.
- Preparations of milk, cereals, flour, and starch (largely infant formula) up 7.4% to $158 million.
- Wine up 9.6% to $210 million.
In addition, exports of eggs, honey, and other edible animal products were up 6.0% to $43 million; live animals up 128.1% to $27 million; and wool up 22.2% to $41 million.
The net result was a monthly goods trade deficit of $2.17 billion, even bigger than August’s month deficit of $2.14 billion. This was a blowout from September 2020’s $1.02 billion deficit and it was also a lot bigger than September 2019’s deficit of $1.31 billion.
For the year ended September 2021, goods exports were worth $61.53 billion, up 2.1% compared to the year ended September 2020. Looking at the key export commodities:
- Milk powder, butter, and cheese down 1.4% to $16.17 billion.
- Meat and edible offal up 0.2% to $8.36 billion.
- Logs, wood, and wood articles up 26.5% to $5.55 billion.
- Fruit up 0.9% to $3.90 billion.
- Preparations of milk, cereals, flour, and starch down 9.7% to $2.16 billion.
- Wine down 3.5% to $1.92 billion.
In addition, exports of eggs, honey, and other edible animal products were up 1.5% to $515 million; live animals up 14.7% to $475 million; and wool was up 2.9% to $419 million.
Goods imports for the year ended September 2021 were worth $65.6 billion, up 11.9% compared to the year ended September 2020. Imports of vehicles, parts, and accessories were up 47.7% while petroleum products were down 8.2%.
On an annual basis, the net result was a goods trade deficit of $4.09 billion. This was a widening from a $2.94 billion deficit for the year ended August 2021, and a stark contrast to the $1.66 billion surplus for the year ended September 2020.
Covid impacts shown in business stats.
The Covid-19 pandemic had a significant impact on businesses and employees in affected industries, according to Statistics NZ’s annual Business Demography Statistics.
New Zealand had 562,520 enterprises in February 2021, an increase of 0.5% from February 2020, while the number of paid employees in these enterprises was 2.31 million, down 0.4%.
Industries had mixed fortunes. Of the 19 industries, 10 had more enterprises compared with February 2020, while nine had more employees. Transport, administrative and support services, arts and recreation services, and accommodation and food services were the hardest hit industries.
Agriculture, forestry, and fishing had a drop in enterprises but an increase in employees. This is shown in the table below, including numbers for agriculture on its own, and for the main sub-sectors within agriculture.
|February 2020||February 2021||% Increase|
|Agriculture, forestry, and fishing||66,567||65,904||-1.0%|
|Sheep, beef cattle, and grains farming||23,925||23,769||-0.7%|
|Dairy cattle farming||15,330||15,189||-0.9%|
|Agriculture, forestry, and fishing||121,400||124,000||+2.1%|
|Sheep, beef cattle, and grains farming||19,500||19,100||-2.1%|
|Dairy cattle farming||25,300||25,700||+1.6%|
New Zealand had the slowest population growth in almost a decade, with our big cities notable growth laggards, according to Statistics NZ’s annual Subnational Population Estimates.
New Zealand’s population as at 30 June 2021 was 5,122,600, up 32,400 (0.6%) for the year. This was marked slowdown from the 94,800 (1.9%) growth for the previous year.
For the first time in many years Auckland’s population declined, dropping by 1,300 (0.1%), with drops across most suburbs, especially inner areas. Most of Auckland’s population growth over recent years has been from international migration but COVID-19 border restrictions and the steep drop in immigration dried up that source of growth while more people moved from Auckland to other parts of the country. Wellington and Christchurch, our next two biggest cities, also barely grew, by only 0.1% percent each.
Although Southland and West Coast regions had population declines, most regions grew, albeit more slowly than for the previous year. Northland, Bay of Plenty, Tasman, and Waikato had the fastest regional growth. Meanwhile, 61 territorial authorities (out of 67) had population increases, with Selwyn’s the strongest.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 28 October) show most of the country’s soils with about average or wetter than usual moisture levels for this time of year. However, some parts are getting drier, such as Bay of Islands and the east coast of the North Island south of Gisborne as well as in the South Island in parts of Mid Canterbury and North Otago.
The NZ Dollar was a little weaker this week, slipping 0.5% against the Trade Weighted Index. It was down against all our major trading partner currencies, except the UK Pound.
The expectation of higher interest rates after this week’s stronger than expected CPI will have been a factor. But positive news such as the latest GDT increase and the UK-NZ FTA announcement might also have boosted sentiment.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was up four points to 0.78%, but the 10 year Government Bond yield dropped 13 points to 2.24%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 24 November.
|This Week (28/10/21)||Last Week (21/10/21)||Last Month (28/9/21)||Last Year (28/10/20)|
|90 Day Bank Bill||0.78%||0.74%||0.64%||0.27%|
|10 Year Government Bond||2.24%||2.37%||1.94%||0.55%|
Source: Reserve Bank of NZ