NZ commodity prices fall as dairy prices slide

Exports to China offset declines to other nations. Photo / Mark Mitchell

New Zealand commodity prices fell for a sixth straight month in August, taking the index to a 17-month low, led by declining dairy prices, in part due to an oversupply in China.

The ANZ Commodity Price Index slid 3.3 per cent last month, and is now 12 per cent below February's record high. Whole milk powder dropped 15 per cent in the month, paced by a 13 per cent decline in skim milk powder and a 10 per cent drop in butter prices.

The survey comes ahead of the Reserve Bank's quarterly Monteray Policy Statement next week, where governor Graeme Wheeler is widely expected to keep interest rates on hold, after hiking the official cash rate 100 basis points since March to 3.5 per cent.

Inflation figures have come in lower than the central bank initially expected on the back of a cooling property market in Auckland and Christchurch, lower growth forecasts and a drop in commodity prices.

Prices for dairy products, New Zealand's largest export, have tumbled some 40 per cent at the GlobalDairyTrade auction since the start of the year, causing Fonterra Cooperative Group to slash its forecast farmgate milk payout for 2015 to $6 a kilogram of milk solids, from an inital $7/kgMS, as a build-up of inventory in China dents demand and weighs on dairy prices.

Last week New Zealand posted its first monthly trade deficit for the month of July, as the price of logs, the third largest export, dropped some 16 per cent in the year.

Among other export commodities, apples fell 4 per cent, kiwifruit slipped 2 per cent and sheepmeat declined 1 per cent, according to the ANZ index.

Meanwhile, beef increased 13 per cent, to a new record high. Aluminium prices advanced 4 per cent to an 18-month high and wool prices rose 2 per cent. The meat sub-group posted its eight consecutive monthly increase, ANZ said.

Prices for seafood, wood pulp, sawn timber, logs and venision were all unchanged in the month.

The ANZ NZD Commodity Price Index, which shows the price movements in New Zealand dollars, slipped 0.4 per cent in August, reflecting the month's 0.9 per cent decline in the trade weighted index, which is a measure of the dollar against a basket of New Zealand's major trading partners' currencies.