NZ’s terms of trade soar thanks to dairying
Milk prices and import cuts puts Kiwis on the pig’s, er, cow’s back, writes James Weir. High world dairy prices and sharply dropping import prices are pushing New Zealand’s terms of trade to a new 40-year high.
The merchandise terms of trade rose 2.3 per cent in the December quarter, Statistics New Zealand figures show, as the strong NZ dollar caused import prices fall across the board.
Export volumes were at record levels, up almost 10 per cent in the three months, driven by the rebound in the dairy sector after last summer’s drought. Dairy production continued to climb in the past couple of months, so export volumes should keep rising, ASB Bank economists said.
The surge in the terms of trade was one engine lifting national incomes, they said, with dairy incomes alone set for an extra $5 billion this season compared with a year before.
The terms-of trade-figures had little impact on the kiwi, down to US83.5 cents yesterday from US84.2c late last week, as uncertainty about Ukraine worsened.
It was the fourth consecutive rise in the terms of trade, which are at their highest level since the December 1973 quarter and just 3.5 per cent below the all-time peak in the June 1973 quarter. The terms of trade measure of the purchasing power of our exports abroad. An increase means New Zealand can buy more imports for the same amount of exports.
Overall, export goods prices eased back 0.5 per cent in the December quarter, while import goods prices fell 2.8 per cent.
ASB said that lower import prices would be of some comfort to the Reserve Bank, but an interest rate rise this month was ‘‘locked and loaded’’ and rates would rise 75 basis points by December.
After a storming rebound in volumes earlier in the year, dairy export prices eased a touch in the last three months of 2013.
Dairy export values jumped 27 per cent in the December quarter, according to Statistics NZ.
Dairy export volumes, after adjusting for usual seasonal patterns, were up 23 per cent, after the drought recovery, while actual prices dipped 1.1 per cent in the quarter. That reflected the strong NZ dollar, while butter prices fell about 6 per cent and milk powder and cheese prices slid 1 per cent.
However, for the year to December, dairy prices were up 49 per cent, rebounding from a 22 per cent fall in the previous year.
Last week, Fonterra announced a 35c increase in its farmgate milk-price forecast to $8.65 a kilogram of milksolids. Prices are high because of extremely strong demand, especially from China.
Total export volumes rose 9.7 per cent in the December 2013 quarter, up to their highest levels since the set of figures began in 1990, Statistics NZ said.
This increase was strongly influenced by dairy, which accounted for 39 per cent of the value of goods exported in the December quarter – twice as much as meat and forestry combined. Import prices fell 2.8 per cent in the December 2013 quarter.
The fall was broadly based, due to the stronger New Zealand dollar, with mechanical machinery import prices down almost 4 per cent, and chemicals down a similar amount and electrical machinery down more than 5 per cent.
Top cows in a top-earning industry strut their stuff in the show ring at the New Zealand Dairy Event.