Producer prices fall as dairy declines

Prices for dairy products have weakened this year as farmers increased production to take advantage of higher prices. Photo / Mark Mitchell

New Zealand producers' input and output prices fell in the second quarter of this year as dairy prices declined.

Producer output prices, which measure the prices received by New Zealand producers, fell 0.5 percent in the three months ended June 30, Statistics New Zealand said. Input prices, representing the prices of goods and services used by local producers, fell 1 percent in the quarter.

Prices for dairy products have weakened this year as farmers increased production to take advantage of higher prices, resulting in a build up of inventory in China and falling demand in some emerging markets.

Fonterra Cooperative Group's GlobalDairyTrade auction tomorrow morning will be closely watched after dairy product prices slumped to the lowest level since October 2012 in the last auction.

Lower prices for raw milk in the second quarter led an 11 percent decline in the prices received by dairy cattle farmers and a 9.4 percent decrease in input prices paid by dairy product manufacturers, the statistics agency said today.

"Lower milk prices contributed to decreases in both the input and output producers price index in the June quarter," Statistics NZ prices manager Chris Pike said.

In the June quarter, the output dairy product manufacturing price index fell 2.9 percent, reflecting lower prices for milk powder.

Cheaper electricity prices also weighed, with the input electricity and gas supply price index down 8.4 percent due to lower prices for electricity generation. Lower electricity prices reflect spot-market conditions, a shift towards geothermal production over thermal gas-fired generation and higher lake levels, the statistics agency said.

On an annual basis, producer output prices were up 2.5 percent while input prices rose 1.4 percent.

In a separate release, the capital goods price index, which measures changes in the price of new fixed assets bought by local producers, rose 0.7 percent in the second quarter for an annual rise of 2.2 percent. That was led by a 1.3 percent increase in residential building and a 1.1 percent increase in non-residential buildings.

The quarterly capital goods increase was partly offset by a fall in the prices for plant, machinery, and equipment, which declined 0.3 percent as a result of an increase in the New Zealand dollar.

Read the full Producers Price Index report here: