Falling prices knock exports

Export commodity prices are down to their lowest in more than two years, and it is not just dairy farmers feeling the pain.

The ANZ Commodity Price Index for May shows a fall in the kiwi dollar helped cushion the sharp drop in world commodity prices, with dairy hardest hit, but also lower prices for beef and lamb.

Prices are still soft for logs, too, though there was the usual seasonal lift in kiwifruit and apple prices as new season products hit export markets.

World prices for a basket of New Zealand’s key commodities fell heavily for the second month in a row, dropping 4.7 per cent in May, after a more than 7 per cent drop in April.

Prices are down about 18 per cent on a year ago.

Because the Kiwi dollar fell during the month, the New Zealand dollar price index was down a more modest 2.7 per cent in May, and is down just less than 8 per cent on a year ago.

Even so, ANZ said New Zealand dollar denominated export commodity prices ‘‘are now at their lowest in more than two years’’.

The New Zealand dollar was trading at just under US72c on Wednesday, down from more than US77c in late April.

For some sectors, export commodity prices were coming off earlier high levels, ‘‘removing the income fizz in the coming season’’, ANZ said.

But for sectors such as dairy, falling prices would put pressure on cash flows and spending.

They would weigh against the economy during the rest of the year.

Fonterra’s latest GDT auction showed prices dropping 4.3 per cent and the average sale price for whole milk powder falling to US$2412 ($3358) a tonne when some farmers had expected prices to start levelling off.

Many highly indebted farmers were facing ‘‘negative cash flow’’, Reserve Bank governor Graeme Wheeler said in the Financial Stability Report out in the middle of May.

Around 11 per cent of all farm debt was held by farmers with negative cash flow and high debt levels.

Meanwhile, world prices beef fell 5.7 per cent in May.

US beef prices are still high but have come off recently because of high supplies from Australia and New Zealand, ANZ said.

There was also more competition from pork and poultry.

Lamb prices fell more than 4 per cent in world price terms in May, with high domestic supplies in the key markets of China and Britain.

Forestry prices slipped 0.6 per cent in world markets, with prices still soft because of high log stockpiles in China and more competition from Russian supplies, ANZ said.

for