by Nick Clark, Federated Farmers Manager General Policy
Dairy prices rise
This week’s Global Dairy Trade auction was up 1.0% compared to a fortnight ago.
Prices were mixed but they were higher for the two biggest products by volume, whole milk powder (up 2.2%) and skim milk powder (up 0.9%), as well as for lactose (up 1.3%). There were drops for butter (down 1.9%) and cheddar (down 1.2%), while anhydrous milk fat was unchanged.
Overall, the average selling price was $US4,011 and 24,476 tonnes was sold.
This week’s was the third increase in a row and the GDT Price Index is 29.8% higher than at the same time last year.
Farm sales down
The Real Estate Institute of New Zealand (REINZ)’s latest Rural Property Data showed there were 306 farm sales in the three months ended August 2021. This was down 15.9% on the three months ended July 2021 and also down 14.3% on the three months ended August 2020.
Despite the recent drop in farm sales, the full year’s data continued to show strong growth off a low base. 1,680 farms were sold in the year to August 2021, up 37.3% on the previous year. Dairy farms were up 153.8%; dairy support up 1.0%; grazing farms up 24.4%, finishing farms up 50.8%; but Arable farm sales were down 46.4%.
The median price per hectare for all farms sold in the three months to August 2021 was $27,250, up 0.3% compared to the three months to July 2021 and up 7.0% on the three months to August 2020.
The REINZ All Farm Price Index, which adjusts for differences in farm size, location, and farming type, is a better indicator for prices. It increased 0.9% in the three months to August 2021 compared to the three months to July 2021. And it was up 14.6% compared to the three months ending August 2020.
Lockdown hits manufacturing and services
Manufacturing and services have both been hit hard by lockdown, according to the BNZ-BusinessNZ Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI).
The seasonally-adjusted PMI for August was 40.1, down 22.1 points from July. It was also similar to the result recorded in May 2020 during the last national lockdown. A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining.
It was a similar picture for services where the PSI fell 20.3 points to 35.6. This was the second lowest level of activity since the survey began, with the April 2020 result of 26.0 still the lowest.
Least regrets explained
This week the Reserve Bank, in a speech by Deputy Governor Christian Hawkesby, explained what it means by taking a ‘least regrets’ approach to monetary policy.
In monetary policy parlance, ‘hawkish’ is taken to mean decisions for higher interest rates while ‘dovish’ is for lower interest rates. But at times of uncertainty, the Reserve Bank thinks it best to take a flight path of the Kotuku, which it sees as least regrets taking considered steps.
The Reserve Bank said that when the outlook for the economy is subject to large and uncertain changes, the risks are heavily skewed in one direction, and there is material threat of not achieving its inflation and employment goals, the path of least regrets is to move quickly and take large steps. When Covid-19 struck, the Reserve Bank decided this required a 75 basis point cut in the OCR and a programme of large scale asset purchases.
When there is less uncertainty for the outlook, the Reserve Bank thinks it better to inch in the right direction based on how the economy is likely to evolve. When there is a typical amount of uncertainty, and the risks are evenly balanced, then central banks globally will follow a smoothed path. This means keeping policy rates unchanged or move either way in 25 basis point increments.
In February 2021 the Reserve Bank reformulated least regrets to mean not changing the stance of monetary policy and in August 2021 it adjusted its stance further to reduce the level of stimulus in order to anchor inflation expectations and continue to contribute to maximum sustainable employment.
The Reserve Bank next reviews the OCR on 6 October. Although some had been expecting a 50 basis point hike at that review, the Reserve Bank’s speech has changed the sentiment.
The market pricing now suggests a 25 point increase to 0.5% but there are plenty of uncertainties and downside risks, both domestically and globally. So, it would not be totally surprising, given the Reserve Bank’s least regrets approach, if it were to hold off.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 23 September) shows most of the country’s soils with usual moisture levels for this time of year. Hawkes Bay, which over many weeks had been significantly drier than usual, has eased a bit. Soils are significantly wetter than usual in several areas such as Cape Reinga, Gisborne, Marlborough, Kaikoura, Timaru, and much of Otago.
Exchange Rates
The NZ Dollar was weaker this week, down 1.0%. It was down against all our key trading partners, especially the US Dollar (down 1.8%).
Source: Reserve Bank of NZ
Wholesale Interest Rates
This week the yield for the 90 Day Bank Bill was stable on 0.61%. The 10 year Government Bond rose 6 points to 1.86%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 6 October.
| This Week (23/9/21) | Last Week (16/9/21) | Last Month (23/8/21) | Last Year (23/9/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 0.25% |
| 90 Day Bank Bill | 0.61% | 0.61% | 0.39% | 0.30% |
| 10 Year Government Bond | 1.86% | 1.80% | 1.59% | 0.51% |
Source: Reserve Bank of NZ