Biggest NZ commodity price fall since 2008 in April, led by dairy

Monday 4th May 2015

New Zealand commodity prices had their biggest decline since the height of the global financial crisis in 2008, led by falling dairy product prices.

The ANZ Commodity Price Index fell 7.4 percent in April, the biggest decline since October 2008, when it fell by the same amount. The latest decline has reversed most of the gains seen since the start of the year, with prices 15 percent lower than a year ago.

Dairy product prices led declines, down 15 percent to be a third lower than a year ago on weaker milk powder and butter prices. Fonterra Cooperative Group, the world's biggest dairy exporter, last week cut its forecast payout to farmers for the current season to $4.50 per kilogram of milk solids from $4.70/kgMS, blaming volatile global commodity prices and an over supply in international markets.

"The Fonterra downgrade to the 2014/15 milk price payout and continued weakness in dairy prices raise the prospect of a mild 2015/16 opening milk price forecast and low opening advance payments at the end of May, which will bring cash flow stresses to the sector," said ANZ Bank New Zealand agricultural economist Con Williams.

Still, prices in most other major sectors were steady or improved in April, ANZ said.

Meat prices rose 2.3 percent in April, led by a 5.9 percent gain in beef prices on US demand. Stronger buying from China contributed to increases for wool and pelt prices, while lamb prices eased fractionally.

Horticulture prices increased 2 percent, underpinned by a 6 percent rise in apple prices. Prices for aluminium rose 1.5 percent.

Meanwhile, forestry prices were little changed, although prices in the first four months of the year are about 9 percent 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. Seafood prices fell 0.9 percent.

Declining commodity prices are likely to weaken trade, weighing on economic activity and the New Zealand dollar, ANZ said.

The NZD Index fell 8.9 percent, to be 6.8 percent than from a year earlier.

BusinessDesk.co.nz

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