GDT price index drops 10.7%

16/07/2015

More bad news on the dairy front this morning with a drop of 10.7% in Fonterra’s GlobalDairyTrade price index.

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Fonterra’s board will review the forecast milk price next month.

It won’t be going up and could well go down.

The dollar fell to a fresh five-year low in the wake of the GDT result.

The kiwi touched 65.81 US cents, and was trading at 65.92 cents at 8am in Wellington, from 67.05 cents at 5pm yesterday. The trade-weighted index sank to 70.01 from 70.88 yesterday.

The New Zealand dollar dropped sharply after dairy product prices sank an average 10.7 percent to a six-year low in the GDT auction, with the key whole milk powder price dropping 13.1 percent to US$1,848 a tonne. Dairy prices have remained lower for longer amid higher global supplies in New Zealand, Europe and the US, weak demand in China and an import ban in Russia. The weaker prices come as New Zealand production is rising heading into the country’s peak supply period in October, raising concern about the impact on the nation’s economy. . .

We can be grateful we have our own floating currency and aren’t like Greece which is tied to the Euro.

 

 


Working as it should

29/05/2015

The New Zealand dollar has fallen to a four-year low in the wake of yesterday’s announcement of a reduced payout from Fonterra:

The kiwi touched 71.27 US cents, its lowest since March 2011, and was trading at 71.74 cents at 8am in Wellington, from 72.42 cents at 5pm yesterday. The trade-weighted index fell to 75.26 from 75.92 yesterday. . . .

This is the floating currency working as it should and a lower dollar will make it a little easier for all exporters.


Dairy price down, dollar down

05/06/2014

The GlobalDairyTrade price index fell 4.2% in yesterday’s auction, the eight fall in a row.

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That’s a reflection on increased supply of milk here and overseas.

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It’s not a reason for panic.

Fonterra’s opening forecast for this season of $7 is the fourth highest.

The value of our dollar declined after the announcement which might be of comfort for those who think it’s too high.

That’s all of the opposition, most of whom are at best not very enthusiastic about dairying.

A conspiracy theorist might think their antipathy to dairying is, at least unconsciously, linked to their desire to erode the value of everyone’s earnings by devaluing our currency.

 

 

 

 

 

 


It’s not that simple

27/04/2014

Labour finance spokesman David Parker on the  lowering the value of the New Zealand dollar:

. . . But let’s say the New Zealand dollar was overvalued by 15 percent that means that our exporters at the moment are losing 9 billion dollars per annum. . . .

If only it was that simple!

But it isn’t.

Lowering the value of the dollar doesn’t just increase the value of export earnings it puts up the price of all imports and reduces the value of savings and income.

Among the imports which would be more expensive is fuel which would increase household expenses directly and indirectly.

If fuel costs more so does transport and therefore everything that is transported.

Farmers would get more for what they sell but they’d also pay more for big ticket items they buy like fertiliser and machinery.

Other imports include medical supplies, food and a lot of other essentials so a lower dollar would push up costs for households.

If imports cost more inflation would rise which would put pressure on interest rates too.

A lower dollar would make it more expensive to repay foreign debt, public and private.

It would make property cheaper for foreigners too which might encourage more overseas buyers, something the left wants to discourage.

A 15% fall in the value of the dollar might bring in $9 billion more per annum gross but it’s the net figure when increased costs are taken into account that matters.

That won’t be anywhere near $9 billion and it could even result in a greater loss than gain.


High dollar not all bad

28/10/2013

The relatively high value of our dollar makes our exports more expensive but Trans Tasman points out it’s not all bad:

. . . The exchange rate is proving a tough obstacle for many exporters, yet the historically high prices for dairy commodities are a key catalyst for NZ’s improving terms of trade. The strong NZD is also keeping a brake on import costs.

ANZ Bank economists say the $64,000 question will be the extent to which the high NZD impacts on the RBNZ’s deliberations. Concerns regarding the currency are one of the motivating factors behind the RBNZ’s decision to broaden its tool-kit. The recent easing in mortgage approvals suggests the high LVR lending speed limits and subsequent lift in fixed mortgage interest rates for such lending are having an impact on borrowing, and hence the residential property market. But the elevated NZD is providing the RBNZ with more breathing space. It could potentially delay rate hikes.

Opposition parties keeping criticising the government for not doing “something” about the value of the dollar.

That their ideas of “something” wouldn’t work and would threaten the independence of the reserve bank doesn’t get in the way of their rhetoric.

They also conveniently overlook the upside of the higher dollar – imports are cheaper.

This doesn’t just apply just to electronic gadgets and trinkets, it also affects essentials like fuel, machinery, some food and medical supplies.

Another benefit of the higher dollar is that it helps keep interest rates down.

Does the Opposition want to explain to the poor people they purport to represent why they want the cost of living and interest rates to increase?


How important is food safety?

05/08/2013

Food safety is first and foremost a matter of health.

That is the first priority for Fonterra and the government as Trade Minister Tim Groser made very clear on Q&A yesterday:

Today our sole concern is on the health of infants and other users of these products, both our own and in the countries’ that we’re exporting to. So it’s not that we don’t think there’s some very important questions, but we’re focusing on the essential problem of today.
 
“We don’t want Fonterra worrying about their long-term reputation or risks right now. We want everybody focused on the health of the little babies.”

Once the health concerns have been dealt with attention can turn to what happened, how it happened, why it happened, how to make sure it doesn’t happen again and what to do if – as there will be one day – there is another food-safety problem.

This must be done thoroughly and quickly to restore trust not only in Fonterra but in all our food because while health is the first and most important concern, food safety is also an economic matter for New Zealand.

Just how important it is can be seen in the impact on the New Zealand dollar:

The kiwi fell to a month low of 76.99 US cents, and recently traded at 77.15 US cents from 78.31 cents at the New York close and 78.87 cents at the 5pm market close in Wellington on Friday. The trade-weighted index dropped to 73.71 from 75.16.

Lots of people have been wanting a lower dollar.

No-one who understands the importance of food safety and food exports would have wanted it to happen this way.


$NZ under-valued

22/07/2013

Concern about the relatively high value of the New Zealand dollar is widespread.

But the Big Mac Index reckons it’s under-valued.

THE Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America in July 2013 was $4.56; in China it was only $2.61 at market exchange rates. So the “raw” Big Mac index says that the yuan was undervalued by 43% at that time. . .

Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies. For those who take their fast food more seriously, we have also calculated a gourmet version of the index.
 
This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower. PPP signals where exchange rates should be heading in the long run, as a country like China gets richer, but it says little about today’s equilibrium rate. The relationship between prices and GDP per person may be a better guide to the current fair value of a currency. The adjusted index uses the “line of best fit” between Big Mac prices and GDP per person for 48 countries (plus the euro area). The difference between the price predicted by the red line for each country, given its income per person, and its actual price gives a supersized measure of currency under- and over-valuation.

Hat tip: Anti-Dismal who says by this measure the New Zealand dollar is over-valued by 5.7%.

 


Milk price up, dollar follows, drought declaration extended

06/03/2013

The trade weighted index increased by 10.4% in this morning’s GlobalDairyTrade auction.

GDT Trade Weighted Index Changes

It was the sixth increase in a row.

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Anhydrous milk fat was up 4.9%; butter increased 9.6%; butter milk fat was up 14.3%; cheddar increased8.3%; milk protein concentrate was up 11%; rennet casein increased 1.2%; skim milk powder increased 4.6% and whole milk powder was up 18%.

The price of whole milk powder is the major determinant of the payout so it it likely Fonterra could increase the farmgate price.That would be welcome news for the economy.

It would also be good news for North Island farmers who have been drying off cows and are facing much lower production because of the drought.It’s raining in Dunedin as I type and the temperature has dropped here which indicates a southerly change.

The rain will be welcome here and is needed even more further north where the area under official drought has been extended.

A state of drought has been officially declared in the South Auckland, Waikato, Bay of Plenty and Hawkes Bay regions today by the Minister for Primary Industries Nathan Guy.

The area covered includes the Auckland Council area south of the Harbour Bridge, and all of the Waikato, Bay of Plenty and Hawkes Bay Regional Council areas – including Coromandel and Taupo.

“This is recognition that farmers across the North Island are facing extremely difficult conditions, and follows on from the announcement of drought in Northland last week.

“The declaration of a medium-scale event means that extra Government funding will now be available to Rural Support Trusts. These organisations work closely with farmers, providing support and guidance in what is a very tough time.

“I realise these can be stressful times for rural families, and they need to know who to turn to for support.

“There will also be Rural Assistance Payments (RAPs) available from Work and Income, through the Ministry of Social Development. These are equivalent to the unemployment benefit and are available to those in extreme hardship.

“This decision has been made after consultation with the communities affected, and an assessment from the Ministry for Primary Industries.

“The entire North Island is dry, and I am keeping a close eye on other parts of the East Coast, as well as Wairarapa, Manawatu and Taranaki. Farmers badly need some rainfall during March and April to help prepare for the winter and set up for next spring.

“It’s important to note that support is available from Government agencies in all regions, even without a drought declaration. Farmers should contact IRD if they need help or flexibility with making tax payments, and standard hardship assistance is available from Work and Income.

“It’s great to see that banks are offering flexible finance options in these tough times as well.

“The conditions are also creating challenges for lifestyle block owners, and we urge them to take action early,” says Mr Guy.

Exporters were hoping the drought might help bring the dollar down a bit but it was back up over 83 cents this morning.


$NZ slightly under-valued on Big Mac Index

03/02/2013

The value of the New Zealand dollar is making business more difficult for exporters.

Government critics say it is too high, and the government should do something.

But is it too high?

The Economist’s Big Mac Index doesn’t think so.

The Index compares the cost of McDonald’s signature burger in the US to its price in other countries.

If a Big Mac costs more in your country than the US, your currency is overvalued. A cheaper burger indicates its undervalued.

“It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries,” the publication explains.

The Economist reports a Big Mac costs $US4.37 in the US and $US4.32 in NZ – meaning the Kiwi is just 1% undervalued, and one of only a handful of surveyed currencies that is fairly valued. . .

Those saying the dollar is over-valued have yet to come up with a definitive answer to the question of what the right value should be.

They also ignore the benefits of a higher dollar –  imports are less expensive and interest rates lower.

People who are unhappy with the higher dollar would almost certainly be just as unhappy with higher prices for fuel, medicines, machinery  . . . and higher interest rates.


Tracking the $US – updated

04/06/2009

The value of the $US dollar matters to New Zealand because a lot of our exports are traded in that currency and every cent it goes up means lower returns for our produce.

Recent rises in the exchange rate haven’t been because our dollar has become more popular, they’re more because the $US has fallen.

The graph tracks the changes in the value of the $US against the currencies of five key dairy trading nations from 2002 until the end of May:

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From April 1 to May 29 the $US fell 12% against the Brazilian real (purple line); 11% against the $AUs (red line) 10% against the $NZ (blue line) 5% against the euro (green line) and 1% against the Argentinean peso (pink line).

Our dollar fell three cents against the $US yesterday reflecting both a rally in that currency and concern about the 12% fall in the price Fonterra got in its latest globalDariyTrade auction.

UPDATE: Matt Nolan and Paul McBeth have corrected me: the increase in the value of the $NZ is due to both the fall in the $US and popularity of the $NZ.


$NZ follows interest rates down

12/09/2008


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