Federated Farmers of New Zealand

11/22/2019 | Press release | Distributed by Public on 11/21/2019 16:46

Economic Week - November 22

Economic Week - November 22

by Nick Clark

Dairy prices rise
This week's Global Dairy Tradeauction posted a further rise, the fourth in a row.
Overall, the GDT Price Index was up 1.7% compared to the last auction a fortnight ago. Although there were falls for butter and anhydrous milk fat, there were solid gains for the two biggest commodities by volume, whole milk powder (up 2.2%) and skim milk powder (up 3.3%).
Overall, the average selling price was US$3,481 per tonne and 37,968 tonnes were sold.
The GDT is now up 26.6% on the same time last year.
Some economists have responded to recent increases by lifting their forecasts for Fonterra's farmgate milk price for the current season, for example BNZ's to $7.40 and ASB's to $7.50.

Farmgate prices rise…
The prices paid and received by businesses rose in the September quarter, with farmers' output prices at the farmgate up particularly strongly, according to Statistics NZ's quarterly Business Price Indexes.
Overall, across all industries, the Producer Price Index for outputs (prices received) was up 1.0% for the quarter and up 1.8% for the year. Output prices for sheep, beef cattle and grains farmers were up 7.6% for the quarter, recovering from losses in the December 2018 and March 2019 quarters, to be up 0.3% for the year. Output prices for dairy cattle farmers were also up 4.4% for the quarter to be up 7.5% for the year.
Contrasting with the 7.6% quarterly jump in output prices for sheep, beef cattle and grains farmers, was a steep 9.1% drop in output prices for forestry and logging businesses on the back of a slump in log export prices into China.
Meanwhile, the Producer Price Index for inputs (prices paid) was up 0.9% for the quarter and 2.1% for the year. Input prices for sheep, beef cattle and gains farmers were up 0.4% for the quarter to be up 2.1% for the year, while input prices for dairy cattle farmers were up 1.5% for the quarter to be up 2.4% for the year.

…but farm expenses also rise
The Business Price Indexes also includes the Farm Expenses Price Index for the September 2019 quarter. During the quarter farm expenses were up 0.9% while the annual increase for the year to September was 2.2%, down slightly from 2.5% for the year to June.
Most farm expenses rose in the September quarter, with the biggest increases being for livestock purchases (up 4.5%), dairy shed expenses (up 2.7%), and freight (up 1.9%). In contrast there were quarterly drops for fertilise (down 0.6%), seeds (down 0.5%), and interest rates (down 1.1%).
On an annual basis, the biggest increases were for shearing costs (up 6.8%), fertiliser (up 6.5%), local and central government rates and fees (up 5.3%), and electricity (up 4.5%). The only expenses to decline on an annual basis were fuel (down 3.7%) and interest rates (down 2.1%).

Farm sales down
There were 260 farm sales in the three months ended October 2019, down 1.1% on the same month period last year, according to the Real Estate Institute of NZ's latest Rural Market Statistics.
For the year to October 2019, 1,336 farms were sold, 9.4% fewer than were sold in the year to October 2018. Sales of Dairy farms were down 36.0%, Grazing farms were down 3.7%, Finishing farms were down 13.6% but Arable farms were up 7.0%.
The median price per hectare for all farms sold in the three months to October 2019 was $25,637, down 5.5% on the same three month period last year. However, the REINZ All Farm Price Index rose 0.8%. The REINZ All Farm Price Index adjusts for differences in farm size, location and farming type, unlike the median price per hectare.
As well as remarking on frustration and even anger of the rural sector about government policies, REINZ also described the banking industry as 'the dark elephant in the room', which in its view 'is less than subtly erecting barriers to frustrate rural borrowers, and in the process risking a potential major drop in farm values as increasing numbers of land owners seek to exit the industry'.

Living beyond our means
New Zealanders are renowned for being poor savers and for the fifth year in a row, our households have spent more than they've earned.
Stats NZ's National Accounts (Income and Expenditure)estimated household net disposable income at $169.6 billion for the year ended Match 2019, up 4.9% on the previous year. Final consumption expenditure was $170.2 billion, up 5.1%, meaning household saving was negative $566 million.
Since 2005, saving for the household sector was positive only from 2010 to 2014, peaking at $3.2 billion in 2012. New Zealanders' collective proclivity to spend more than they earn has to be plugged either indirectly through overseas borrowing by our banks or directly through foreign direct investment (FDI).

Overseas Investment Act changes
Speaking of FDI, the Government this week announced decisions from its review of the Overseas Investment Act.
Among the changes will be a new national interest test for sales of particularly 'sensitive and high risk assets', including ports and airports, telecommunications infrastructure, electricity and other critical infrastructure.There will also be a 'call in' power to apply to sales of strategically important assets, such as firms developing military technology and direct suppliers to defence and security agencies.
The Government will require consideration of the impact on water quality and sustainability of water bottling enterprises, when assessing an investment in sensitive land. It will also entrench its current policy directive on overseas investment in farmland into the Act itself to make it harder for any future government to unwind it.
These changes will all add further hurdles for overseas investment, but other changes will be made to simplify and streamline requirements, especially for lower risk types of investment.
The forestry investment test was out of scope for the review, but Federated Farmers has called on the Government to separately review that test and its impact on rural economies and communities.

NIWA Soil Moisture Data

NIWA's latest soil moisture maps(as at 9am Thursday 21 November) show very mixed conditions around the country. The coastal areas of Wairarapa and Tararua are significantly drier than usual while it is significantly wetter than usual in a number if areas but Otago and Southland in particular.

Exchange Rates

Over the course of the week the NZ Dollar was almost unchanged both against the TWI and against the UD Dollar. It was up against the Australian Dollar and the Chinese Renminbi and down against the Euro, the UK Pound, and the Japanese Yen.

NZ Dollar versus

This Week


Last Week (14/11/19)

Last Month (21/10/19)

Last Year (21/11/18)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index





Source: Reserve Bank of NZ

Wholesale Interest Rates

Over the course of the week there were falls for the 90 Day Bank Bill interest rate (down 7 basis points) and for the rate for 10 Year Government Bonds (down 9 basis points). The OCR is next reviewed on 12 February 2020.

This Week


Last Week (14/11/19)

Last Month (21/10/19)

Last Year (21/11/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ