WELLINGTON: Tumbling dairy prices dragged ANZ’s commodity price index 7.4 per cent lower last month and a stronger New Zealand dollar amplified the decline.
Dairy products make up 47.4 per cent of the index and their 15.2 per cent drop last month in world price terms, to levels one-third lower than a year ago, pulled the index down to a level 18 per cent off its peak in February last year.The strong Kiwi dollar was doing the export sector no favours, said ANZ economist Con Williams.In New Zealand dollar terms the ANZ index fell 8.9 per cent in April to be 6.8 per cent down on a year ago.
Declining commodity prices suggested the terms of trade – the mix of export and import prices – would continue to deteriorate and the trade balance continue to weaken, Williams said, which was expected to weigh on economic activity and the dollar as 2015 progressed. New Zealand recorded a trade deficit of $2.4 billion in the year to March, its largest for nearly six years.
Williams said Fonterra’s downgrade of its 2014/15 milk price payout and continued weakness in export dairy prices raised the prospect of a “mild” opening forecast for next season and low advance payment at the end of May, which would bring cashflow stresses to the sector.
Dairy prices continued to decline in GlobalDairyTrade auctions last month, with average prices down 10.8 per cent at the first auction and 4.6 per cent at the second, wiping out an incipient recovery earlier in the year.
Finance Minister Bill English on Friday cited weak dairy prices as one reason the promised return to a Budget surplus would take longer than expected.The Treasury said yesterday dairy prices so far were in line with its half-year forecasts in December.
“But further increases are needed to achieve the recovery in dairy export prices that we forecast in the second half of this year,” it said.Williams said most of the other major commodities were steady to up slightly.
“Beef prices increased 5.9 per cent as the US market continued to perform well, driven by robust demand and a shortage of domestic lean beef.”
Lamb prices eased fractionally, but stronger buying from China contributed to increases for wool and pelt prices, Williams said.
Overall, the meat and wool sub-group was up 2.3 per cent last month to be little changed from a year ago, but 12.4 per cent below its highs of last September.Forestry prices were little changed over the month but remained on a softening trajectory, he said.
“Prices in the first four months of the year have been about 9 per cent behind the same period last year. The majority of the decline has centred on logs and wood pulp, with a reduction in end demand in China and increased competition from Russian supplies.”Forestry exports in the first three months of 2015 were down nearly 14 per cent on the same period last year in dollar terms.
Apple prices rose 6 per cent last month but remain lower than a year ago. Aluminium firmed 1.5 per cent, to be 0.8 per cent down on a year ago. Seafood prices fell 0.9 per cent.
