by Nick Clark, Federated Farmers Manager General Policy
Terms of trade back to record high
Higher export prices in the June quarter pushed up the merchandise terms of trade, according to Statistics NZ’s International Trade Indexes.
Export prices for goods rose 8.3% on the previous quarter, while import prices rose 4.8%. Stats NZ noted that export and import goods prices had both previously fallen each quarter since the first half of 2020, including large falls in the September 2020 quarter. The terms of trade’s recovery in the June 2021 quarter took back to its level in June 2020 which had been a record high.
Dairy and forestry products were the biggest contributors to rising goods export prices. Export prices for dairy products increased 15.3% on the previous quarter, while prices for forestry products increased 12.7%. Meat export prices were also up 6.8%.
The terms of trade measures New Zealand’s purchasing power for import goods, based on the prices it receives for exports. An increase in terms of trade means we can buy more import goods for the same quantity of exports.
Trade volumes were also stronger in the June quarter. Export volumes for goods rose 2.9% compared to the March quarter and import volumes rose 4.4%. Combining prices and volumes results in values. Export values for goods rose 9.2% and import values rose 4.6%.
Hort debt jumps in July
Horticulture drove an overall increase in agricultural debt, according to the Reserve Bank’s Sector Lending Statistics for July.
Lending to the agricultural sector was $62.56 billion in July 2021, up $235 million for the month but down $535 million (or 0.8%) from July 2020. This was comprised of lending to the following sectors:
- Dairy cattle farms: $38.13 billion, down $51 million for the month and down $1.53 billion (3.9%) for the year.
- Sheep, beef cattle, and grains farms: $15.14 billion, up $22 million for the month and up $47 million (0.3%) for the year.
- Horticulture: $6.23 billion, up $280 million for the month and up $601 million (10.7%) for the year.
- Other agriculture on farm: $2.36 billion, down $25 million for the month and up $5 million (0.0%) for the year.
In contrast to agriculture’s annual decline in lending (down 1.1% when break adjusted), the growth in housing lending continued to surge on the back of the booming housing market, increasing further to 12.1%. Business lending was up 0.6% and personal consumer lending down 4.7%.
Business confidence drops, but farmers’ improves
The ANZ Business Outlook Survey for August has shown a slip in business confidence but farmers feeling a bit better than a month before.
Overall, a net 14.2% of respondents expected general economic conditions to worsen over the coming year, a 10.4 point deterioration on July’s result. For agricultural respondents, a net 30.4% expected worsening but this was a 15.1 point improvement from July.
The survey’s own activity indicator was also down. Overall, a net 19.2% of respondents expected their activity to increase over the coming year, down 7.1 points. For agricultural respondents, a net 30.4% expected to increase their activity but this was up 12.2 points.
According to ANZ these two confidence indicators slipped before Level 4 lockdown with responses received after 17 August not dramatically worse than those received prior.
Businesses were feeling no respite from cost pressures and inflation expectations continued to increase to above 3%.
Consumer sentiment slips
August also saw a drop in consumer confidence, as measured by the monthly ANZ-Roy Morgan Consumer Confidence Survey.
The overall index came in at 109.6, down 3.5 points compared to July. Although fewer people felt they were worse off financially compared to a year ago, there was decrease in those expecting the economy to be ‘good’ versus ‘bad’ over the next twelve months as well as over the next five years. There was also a sharp drop in the net score for whether it is a good time to buy a major household item (down from +24 to +13).
Inflation expectations also ticked up to 5.1% while house prices are expected to increase 6.3% over the next twelve months.
Building consents up
In the month of July 2021 4,211 new dwellings were consented, according to Statistics NZ’s monthly Building Consents Issued. This was up 24.2% on July 2020. The value of those residential consents was $1.60 billion, up 26.4%.
For the year to July 2021, there were 45,119 residential consents (up 20.0% on the year to July 2020) valued at $16.92 billion (up 22.2%).
Non-residential building consents were also higher, with a value of $7.77 billion for the year to July 2021, up 15.1%. The annual value of farm buildings was $279 million, down 3.2%.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 2 September) show a similar picture to recent weeks with the moisture of most of the country’s soils being about normal for this time of year. The exceptions continue to be in the Hawkes Bay, where soils are drier than usual while Marlborough and parts of Canterbury and Otago are wetter than usual.
Exchange Rates
The NZ Dollar was up again this week, rising 0.9%. It was up against all our key trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates
This week the yield for the 90 Day Bank Bill was up 4 points to 0.49%. Meanwhile the 10 year Government Bond yield was up 13 points to 1.81%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 6 October.
| This Week (2/9/21) | Last Week (26/8/21) | Last Month (2/8/21) | Last Year (2/9/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 0.25% |
| 90 Day Bank Bill | 0.49% | 0.45% | 0.50% | 0.30% |
| 10 Year Government Bond | 1.81% | 1.68% | 1.52% | 0.59% |
Source: Reserve Bank of NZ