Sep 22, 2014
Home| Tools| Events| Blogs| Discussions Sign UpLogin

Plunging Dairy Prices Signal Slower N.Z. Growth; Kiwi Falls

August 6, 2014
 
 

Prices for dairy, New Zealand’s biggest export, are falling amid rising global production and waning demand from China, which built up inventories earlier in the year.

Plunging dairy prices may squeeze New Zealand farm incomes and curb spending, adding to signs that economic growth will slow, economists said.

Whole milk powder prices slumped 11.5 percent in an overnight auction to $2,725 a metric ton, a two-year low, GlobalDairyTrade said. That extended the decline to 46 percent from a peak in February. A separate report showed New Zealand employment growth slowed more than economists forecast in the second quarter.

Prices for dairy, New Zealand’s biggest export, are falling amid rising global production and waning demand from China, which built up inventories earlier in the year. New Zealand’s Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, last week cut its forecast payment to milk suppliers to NZ$6 a kilogram of milksolids from an initial estimate of NZ$7, and down from NZ$8.40 last season.

"This is starting to enter the danger zone for many," Con Williams, economist at ANZ Bank New Zealand Ltd. in Wellington, said in an e-mailed note. "This will have wider flow on effects to the rest of New Zealand and especially many rural regions."

New Zealand’s dollar dropped to a nine-week low of 84.52 U.S. cents after the auction results. It fell further after the jobs report, buying 84.35 cents at 3:10 p.m. in Wellington.

Story Changed

Exports make up 30 percent of New Zealand gross domestic product, with dairy accounting for almost a third of that.

The dairy auction result "reinforces that growth will slow in 2015," said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. "The income story for dairy farmers has changed, construction growth won’t be quite as strong and you do have the impact of higher interest rates and a still-strong exchange rate."

ASB forecast on July 29 that growth will slow to less than 3 percent in 2015 from 3.7 percent this year assuming a Fonterra milk payment of NZ$6.20 for this season, he said. The bank today cut its forecast for the payment to NZ$5.80.

Fonterra reviews the payment as the season progresses depending on price and currency trends.

Farmers should review their cash flow, Federated Farmers Vice-Chairman Andrew Hoggard said in a statement. Still, the number of buyers in the dairy auction was the most since April, which is a sign prices may be close to stabilizing, he said.

READ MORE
Previous 1 2 Next

See Comments


 
Log In or Sign Up to comment

COMMENTS

No comments have been posted



Name:

Comments:

Receive the latest news, information and commentary customized for you. Sign up to receive the AgWeb Daily eNewsletter today!.

 
 
Enter Zip Code below to view live local results:
bayer
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions