WMP falls -4.4% but other dairy prices rise; China battling to restore sentiment; US car sales hit record; Sydney house prices fall; UST 10yr yield 2.24%; gold up oil down; NZ$1 = 67 USc, TWI = 72.6

WMP falls -4.4% but other dairy prices rise; China battling to restore sentiment; US car sales hit record; Sydney house prices fall; UST 10yr yield 2.24%; gold up oil down; NZ$1 = 67 USc, TWI = 72.6

Here's my summary of the key news overnight to keep you up-to-date over these holidays.

Firstly, the overnight dairy auction was a tame affair with the overall price down just -1.6%. In NZD terms, the fall was less than -1%.

25,671 tonnes were sold at this event which was -13% less than the average for the past year and -24% less than at the same event a year ago.

Of more concern though was the -4.4% fall in the wholemilk powder price, even though there were good rises for cheese, butter and casein.

Fundamentally, there is little evidence here of the industry-expected upturn and this auction has somewhat undermined the basis for the current payout forecast.

The New Zealand dollar fell both before and after the auction with moves that basically adjusted to the event pricing.

In China, they are battling to keep investor sentiment from diving again after Monday's huge sell-off that infected markets around the world. However analysts are warning investors to buckle up for more wild price swings in the months ahead. A lot of the current unease is a consequence of its heavy handed approach to the stock market crash and its surprise devaluation of the yuan in August. Those earlier responses have called its motivations, approaches and abilities into question. All this is adding a huge liquidity strain.

In the US, carmakers there reported very strong December sales, capping off what will be a record year. And analysts are forecasting that 2016 will likely be even better. (Yesterday we reported some weaker US PMI data, but not every such report is weak. Today we got a very strong report from the giant NY area and that is very positive. Most news agencies ignored it however, presumably because it is not negative.)

Sydney house prices fell for the second-consecutive month and recorded the worst quarter in four years in December. Their regulatory crackdown has pushed up mortgage rates especially for investors. Sydney values dropped -1.2% in December from a month earlier following a -1.4% decline in the previous month. This is the first time since May 2013 that Sydney dwelling values have dropped for two straight months. However, year-on-year they are still up +11.5%, just slightly more than for Melbourne. Perth, Adelaide, Darwin and Hobart have all seen year-on-year value falls. The rises in Brisbane and Canberra are much more modest.

Consumer confidence is rising across the ditch, staying well above its long-run average.

Back in the US, their Justice Department is suing Volkswagen, Audi and Porsche over the emissions scandal that saw the German car giant fit software in millions of cars to cheat American (and other countries) emissions tests. Germany fears the outcome. And the car maker is reportedly struggling to fix the problems it created.

The oil price has slipped yet again. Today both the US and Brent prices are just above US$36/bbl.

Gold is up again, now at US$1,079/oz. But earlier yesterday, it had been $10 higher in London before retreating.

The UST benchmark 10yr bond yield is holding, now at 2.24%.

The NZ dollar starts today at 67 USc, at 93.7 AUc, and 62.3 euro cent. The TWI is at 72.6.

The easiest place to stay up with event risk over the holiday period is by following our Economic Calendar here »

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38 Comments

Comment Filter

Highlight new comments in the last hr(s).

Re wmp, when is that time when China buyers can purchase stock inside the FTA tariff free volume threshold?

The correct real estate doublespeak is that Sydney housing had "negative growth".

Noooo, no bad words like negative! like its having a "growth hiatus".

no the phrase is that investors are "taking profits"

Maybe they are tapping the kitchen ATM in favour of adding more units to the housing portfolio?

Ferrari sales in Australia soared to a record last year and demand for Porsche sports cars jumped as the country’s property boom encouraged homeowners to splash out.

Ferrari NV notched up 167 sales in 2015, a 48 percent increase from the previous year, according to a report released Wednesday by the Federal Chamber of Automotive Industries in Australia. Demand for Audi, BMW and Mercedes-Benz brands also surged, outstripping a 3.8 percent nationwide increase in total new vehicle sales. Read more

Real Estate industry is getting lazy - they've forgotten how to lie - can't even lie straight

Negative Growth means it's still growing, (meaning it grew this month), but at a growth rate slower than the previous month

Prices fell this month and the previous month - they didn't grow
And, the latest measure fell faster than the previous measure

Don't worry - Be happy

The 27-year-old who spent $52 million on Villa Igiea trophy home in Sydney

http://www.domain.com.au/news/the-27yearold-who-spent-52-million-on-vill...

In the US, carmakers there reported very strong December sales, capping off what will be a record year. And analysts are forecasting that 2016 will likely be even better.

Hmmmmm.

Despite the blustering propaganda from CNBC's Phil LeBeau, it appears the Auto-sales (and massive inventory build) party is over in America. December US domestic auto sales SAAR printed 13.46 mm - the lowest in 6 months (missing expectations of 14.15mm by the most since November 2008). With non-revolving credit growth slowing in December, and inventories at record highs, the wheels just fell off the credit-fueled auto 'recovery'. Read more

Barfoots December results show new record median of $800,000. "The factor most likely to impact on January sales was the extremely low number of listing at the end of December which, at 2431, was down 25.2 percent on those in November, and the lowest number for any month for more than 20 years."
Low stock level plus low interest rates, plus massive net migration gain, plus record levels of mortgage approvals in the 2 weeks ending December 2015 = further pressure on prices
http://www.rbnz.govt.nz/statistics/tables/c16/

Highly possible that Auckland will see at least a 5% median house price increase in the first quarter.

moved down

Dp

who lists in december? madness, there will always be a large dropoff in Dec vs Nov listings.

What's up with Sweden? - seems it's mired in the same currency soup that is apparently inflicting pain upon our exporters. And that's not all. A State official has elicited the same Saudi Arabian wrath formerly reserved solely for Iran. Read more and more

extract
On the bright side, the inexorable influx of Mid-East migrants ... into Sweden ... will end up causing Sweden's ... housing market to surge even higher

Even Rabo are losing faith in dairy rebound.
http://www.agrimoney.com/news/a-new-year-not-a-new-market-caution-as-dai...?

And my mate in the know says.

>>
The average price is unchanged from last auction. Suggesting less WMP
sold relative to higher value products.

Cf the same auction in 2014 this one sells half the quantity at half the
average price.

With prices for WMP, SMP and AMF flat for the next 6 months. Given the
holding costs involved effectively falling slightly.

Fonterra payout revision time is nigh - at these prices struggling to
exceed $4.00.

And on the bright side ;-) Fonterra shipped 300,000MT in December - a new record for a single months volume. What we don't know is how that value compares.

Dairy prices in the doldrums? Over-stocking wrecking the soils? New Zealand's value differentiation circling the drain? There's an answer. Expand the volume:

As reported this morning in Stuff, the sale of two Oxford dairy farms to a Canadian government pension fund has been approved by the Overseas Investment Office (OIO).

The strategic benefits to the country are beyond doubting. ‘In order to meet OIO criteria that the sale would benefit New Zealand, the new owners plan to increase the size of the milking platform on the farm, largely through investing in irrigation infrastructure and increasing its herd size. Other investments will include "aggressive" regrassing, increasing effluent storage and improving stock tracks so the farm can carry a higher stocking rate.’

Produce more of the same. That’ll get the value up for sure.

Workingman, those irrigation schemes are huge and just as expensive, they become the driving force, looking like a bad idea but the commitment is made, users have to pay or someone in glass office starts to look stupid, in this case it's more than one person and some think they are important people, close to the top.
Im in a farming area, no dairy but some feedlots and the P in the stream is 5x limits, hate to think what E-Can is hiding.

http://www.stuff.co.nz/the-press/news/73502841/hundreds-of-dairy-farmers...

http://www.stuff.co.nz/business/farming/agribusiness/73449115/water-sche...
http://www.stuff.co.nz/business/farming/agribusiness/69148829/crown-irri...

One of my favorites
http://www.stuff.co.nz/business/farming/agribusiness/65665880/first-sod-...

more doublespeak from the urgers and the complicit media
Despite the 60% level of non-compliance, the report called it "a great result".
Strewth - if that's good - what was it before?

Do these compliance reports remind anyone of the Pike River Safety reports before the disaster? Nothing to see here.

Shocking links, Andrewj. And your comments are to the point. The industry and its policy backers represent silo thinking at its most foolish and damaging. The environmental issues are one thing (as it happens, my family and I used to swim in the Selwyn, the Rakaia and Waimakariri rivers), but no less irresponsible is the complete detachment from any alert, contemporary, effective business thinking.

I understand the business case is or was that China would buy whatever old rope we could ship them. And so we continue to build our commodity steamroller. Even if China is the only credible market, no-one, it appears, has considered that baby formula is bought by young parents, and that there are many millions of these who are also educated, discriminating and wealthy, for whom a premium product (meaning environmentally-considerate, pasture-raised, grass-fed or organic) would be a desirable added-value purchase. Good for them and good for the country.

Environmental awareness in New Zealand has long been seen as a counter-cultural, hippy, obstructive inclination. Premium consumers don't see it that way. And nor should we if we're serious about business. But, I fear, expecting bureaucrats and policy people (all the industry cheerleaders and hangers-on) to have an ounce of business expertise is expecting too much. We're all paying for their follies and failures, and there'll be much bigger bills to come.

Infant formula can be a completely useless product. Consider a world with rising unemployment. Less jobs less money more time to be home with bub and feed him her the old fashioned way. To be a buyer of infant formula you need to be in work, you need clean water. The way things are going, mothers might get back to doing it themselves. And hey its way easier than making up blardy bottles.

Hey I buy infant formula for the grandkids when they visit, and don't think I am the only grandparent doing so. ;-)

I wonder if employment will favour women going forward as male employment especially middle management type work and some blue collar work is removed by technology/robots. Aged care, hospitality, cleaners etc may be the biggest employment opportunities going forward. Though some healthcare is already using robots. :-)
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10860599

Just pointing out that for most infant formula is not a necessity but a luxury. Just like the mutton flaps I will hopefully be getting a good return on this year. And the beef mince. Doubt it. Things could be taking a swing for the worse pretty quickly. Check out stockmarkets right now... Also hearing banks are getting meaner with farmers. You know how you wish for youth again...at the moment feeling happy to be older a bit wiser and owing a whole heap less :-/

I am very concerned about the cumulative effects of agri chemical use.
Example a) My neighbour sprays thistles every second year with MCPA a selective hormone spray.
I spray selective areas in mid winter at a rate of 1 litre to the acre, he sprays in late spring when thistles are hard to kill probably at a rate of 2 -3 litres an acre. He does half his farm a year and his shepherd tells me it's been happening for nearly 30 years. His 800 acre farm soaks up 800 litres of MCPA, add that up and his farm now has a soil load of 24,000 liters. Thats all going down the throat of his sheep and cattle into his pea crop, down his streams and everything else on his farm, his soil loading must be maxed out. Cumulative effect on our food...?
example b)
Vineyard, sprays Roundup under vines at a rate of 4 litres per hectare, 3 times a year, being going on for 30 years 300 litres plus under the vines, 300 liters on that small strip under the vines a hectare. Thats 2000 odd plants soaking it up. I asked my spray rep about bud rubbing on the big vineyards thats the buds that pop up each year around the root stock, got told that it's now done chemically.
Then of course there is the dreaded systemic Scala and other chemicals on top of this.

We are now getting to a stage when this must start to show up in our food. Why my vineyard is organic and my farm so nearly so.

example c) local Potato grower, lets just say, buy organic Potatoes.

Interesting examples and comparisons, Andrewj. Whether it’s atmospheric, oceanic, or land or fresh water ecology, no awareness is growing faster than that of global and local environmental conditions and associated human responsibility.

I’m not a doomster. I believe we are fast developing a new sense of relationship between ourselves and the world ‘out there’. And this is a business issue, a business opportunity, as much as anything else. Indeed some of the fastest growing and most influential businesses in the world have their roots in meeting these environmental issues. I’d like to see our agriculturally or environmentally dependent economy move into the same responsible space. I’m convinced it’s essential for our national well-being. The central issue is that the environment is no longer a field for unthinking, damaging, treatment and exploitation.

I see these as fundamental issues of life. We feel or know ourselves to be a part of nature and, at the same time, apart from it. A thought I picked up and find useful, is that through humanity, through our consciousness, nature has become conscious of itself. And consciousness offers a choice to behave responsibly. I wish your vineyard and farm well.

Yes well, increasing herd size and a higher stocking rate does not necessarily = any more production so there's probably not a net gain to NZ in what they are proposing. Increasing effluent storage when increasing stock numbers is possibly an E-Can requirement - so nothing special there either. FarmRight managing the farm mmm.........

Have to agree WM. So many people looking at the shiny bubbles ,they don't realise the soap is underneath. (Not just the rural sector). :-)

who has been the driving force behind these dam projects? The regional councils, i believe, the farmers are the last ones on board that need convincing to sign up. So why would regional councils push for these projects and at the same time run media campaigns rubbishing farming and it's polluting effects on rivers? They are a bit like cops who sell drugs in my opinion.

Try first to be paid civil engineering firms.

Try being more cynical

Look to the land-owners and then double-check if any of those same land-owners are also on the councils

Consider the possibility the land-owner is not the farmer who is farming the land
Availability of irrigation increases the value of the land
Any benefit to the "farmer" only arises when the cost of water is less than the incremental production output, the economics of which must be marginal

There's no doubt a farmer might benefit, but in our region I believe they are still investigating water schemes, in spite of our regional council being full of greenies, ( no farmers) , commodity prices being poor. I don't think they will go ahead, call me cynical but what's it all about? consultants and experts still clipping the ticket?

Yes consultants/experts initially said this was definitely a goer. So far it's a case of 'yeah,right'.
http://www.odt.co.nz/regions/central-otago/354268/working-cost-irrigatio...

Follow the money

Article October 2013
http://www.interest.co.nz/node/66980/rural%20news

read the comments starting off with AndrewJ
http://www.interest.co.nz/node/66980/rural%20news#comment-754689

So dairy, if reports are to be believed is doomed, and yet the Fonterra Shareholder Fund Units are up to $6.04 from a $4.61 in August 2015????

Sometimes levers get pulled. Take a look at this, something has gone horribly wrong.

http://finviz.com/futures_charts.ashx?p=d1&t=QA

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