Dairy prices up +3.1%, IMF sees global economy gaining momentum; US building permits rise, real wages jump; UK to get snap election; Aussies to end '457' visas; UST 10yr yield at 2.17%; oil down, gold up; NZ$1 = 70.3 US¢, TWI-5 = 75.1

Here's my summary of the key events overnight that affect New Zealand, with news that the data is giving different signals to the news narratives.

But first, this morning's dairy auction was not as strong as the derivatives market expected. But there are gains. Overall, prices are up +3.1% in USD terms, up +2.2% in NZ dollar terms. The key WMP price is up a disappointing +3.5%. However, it is now three small but steady rises in a row, making back all of the -6.4% fall on March 7. Today's result won't be changing any forecasts one way or the other, although some futures market traders might be nursing some bruises. Still, things are very much better than they were a year ago when we were deep in a hole. Today's prices represent more than a +50% increase over that low period.

The IMF has released an upbeat report on the global economy, despite the obvious challenges. The world economy seems to be gaining momentum, they say. Their chief economists said "we could be at a turning point" to go higher (p xiv). The report forecasts global growth this year of +3.5%, up from +3.1% predicted for 2017 last year. They reckon the acceleration will be broad based across advanced, emerging, and low-income economies, building on gains we have seen in both manufacturing and trade. Their assessment seems to be consistent with the data we have seen over the past six months, but has been obscured by the unusually strident political narratives swirling around the world. Perhaps we should watch the data, rather than get caught up in social media 'views'.

In the US, house building fell more than expected in March as the construction of single-family homes in the Midwest recorded its biggest decline in three years. However a healthy rise in building permits suggests this is a one-off and their housing market recovery remains on track.

First quarter earings data was also released today in the US and that showed healthy gains. Median weekly earnings of America's 110 million full-time wage and salary workers were US$865 (NZ$1,235) in the first quarter of 2017. This was +4.2% higher than a year earlier, compared with a rise of +2.5% in their Consumer Price Index over the same period. Real wages and spending power both are rising, and more than you would think if you did not watch the data.

The Fed's review of industrial production and capacity utilisation was also positive.

Across the Atlantic, Britain is to have a snap election on June 8, designed to give their prime minister a stronger hand in the Brexit negotiations with the EU. There are few implications outside of strictly domestic rivalries.

Across the Tasman, the Aussies are to change their immigration settings, ending their '457 visa' program. Bill English signaled a review here as well.

In New York, the UST 10yr yield is sharply lower today and now at 2.17%.

Oil prices are down as well and now just over US$52.50 for the US benchmark, while the Brent benchmark is now just over US$55 a barrel.

The gold price however is unchanged at US$1,290/oz.

Tthe New Zealand dollar will also start pretty much unchanged at 70.3 USc. On the cross rates the Kiwi dollar is up at 93.1 AU¢ and against the euro we are still at 65.6 euro cents. The NZ TWI-5 index is now at 75.1.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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with tightening of the 457 visa, I expect the immigration from nz to aussie to increase as the backdoor is wide open. How long before the aussies tighten NZ immigration, we are now the largest group into queensland

Yep, its embarrassing to admit but the Kiwi love for cane toads is very strong.

This is what I love about this site, they drill down and find statistics that you just don't see anywhere else.

"First quarter earings data was also released today in the US and that showed healthy gains."

Who knew?

The IMF issuing an upbeat report on world economic prospects is disturbing. The Interest.co doomsday commentators chapter has been in session this morning and has decided this is fake news, probably released by Pyongyang.

It just doesn't fit their narrative - if the rest of the world is doing well what does that mean for New Zealand.....

It means nothing. NZ is an independent bastion, fully insulated from world economic trends. The year on year increase in growth forecasted by the IMF will have zero effect on us. Back in yer box.

I recommend borrowing the maximum amount and buying several houses in response to the IMF report.

Absolutely. What could possibly go wrong. Growth in world economic activity and house price growth are always directly correlated.

Absolutely. Everyone knows global productivity centres around NZ house prices.

Real wages and spending power both are rising, and more than you would think if you did not watch the data.

Not enough to upwardly influence CPI. Hence the 2s10s UST spread is flirting with100 down from 128 earlier in the year, while the outright UST10 yr continues it's collapse from a recent 2.45% high to 2.17%.

Even the NZ 10 year note trades below 3%. Discounting a 1% 10 year real growth forecast? Phew!!! - I can hardly wait.

If the USDA stopped 'buying' excess dairy produce to support farmers maybe USA dairy would start to get the message about over production.The U.S.D.A. is trying to help out farmers and shore up the market by purchasing more dairy products. Yesterday, the agency announced it would buy $20 million worth of cheddar cheese from producers, on top of another $20 million purchase of cheddar back in August. (The U.S.D.A. funnels all this cheese to places like food pantries.)

I have thought for a few years now that our biggest threat is the USA overproducing and using it's economic clout to get into markets ahead of us.

European countries are back putting milk powder into intervention as prices slump

AndrewJ etc...

Does that mean it is "turning to custard again"...or shall we say intervention, is challenging the status quo.?...with 30% held over from last dow-n-turn?...but Farmers are still milking it for all Fonterror is worth.

Is "Dumping Working"?. does pumping pay.? Should one buy a Dairy Farm on the off chance?,. Does Richie Mac-Kaw epitomise Farmers Dumping here. Does it pay him.? Should kids be really thankful?. Is vegan and Dairy Free, becoming a reality play?. Why is our milk so high, when all the worth is sucked out of it?. Is Fonterror creaming it?. are Farmers really HAPPY.?

What about Share Milkers?.

A few home truths might help.

All help appreciated.

The EU has 24 million cows but production per head is nearly double ours. We have I think just under 6 million. So %30 of EU production in stock is a big deal for world dairy industry.

I think we should be dropping numbers but what else to de with the expensive land? Just too much food in the world.

Food security is going to be a big deal. In the UK breast cancer is running at 1 in 8 women and increasing at %2 pa.

Bank of America Merrill Lynch recently put out a report on farming in the USA, it wasn’t positive.

“ Locked into a vicious cycle, the result of a perpetually oversupplied market. Farmers continue as long as cash flows are positive, ignoring return on capital. Yield increases continue to outpace demand, leaving markets perpetually oversupplied and commodity prices below what would be required for a normalised profit for most farmers.”

“ Yields are continuing to improve with no sign of change as seed technology improves maximising yield potential. Yields improving at %2 ‘Compounded annual growth rates’ since 2000. This will continue to add deflationary pressure to prices long term.”


It’s reckoned that we each need around 2,500 calories per day. That’s the approximate amount of calories a human being needs to live, breath and exist. Small people need less, big people need more. Active people need more, lazy people need less, but as a guide, 2,500 is a nice easy number to work with.

If you take the total number of calories in all of the cereal we produce every year, then divide it by the total population of the world, you’ll find there is enough cereal to feed every single person on the planet 2,500 calories, every single day of the year.

With plenty left over.

There’s actually around 25% more calories in the annual cereal crop than we need to feed every human being in the world.

That’s without considering the other calories available in foods that are grown, nurtured, bred or created around the world, like vegetables, fruit, meat, cheese, milk, chocolate and Big Macs.

We have so much cereal because most of them are fed to animals, not humans. When all those animals are fed and 40% of the corn grown in the USA is turned into biofuel, after 30% of the world’s fish catch is fed to livestock and we have simply thrown 30% of all food in the bin, there is still 2800 calories of food left, per person, per day.

2800 calories for every one of the 7,300,000,000 people on the planet is enough to make us all a bit tubby around the waist. Which makes me wonder, if there’s so much food around, why are there people dying of hunger in the world?

It's an interesting counterpoint to all the "peak everything" theorists.

There is so much food and energy in the world there is no money in either.

Edit: Bob Dylan 1979
"you know it costs more to store the food than it do to give it"

I note with interest that you include a big mac as a food group.

Andrew J - are you saying EU cows produce nearly 100% more milk than NZ cows?

Opening paragraph

it varies and C/O will know more that me but yes much higher per head production, parts of the EU like Spain are lower, which affect averages.

The apparent milk yield per dairy cow increased by 1.5 % in EU-28 from 2014 to 2015, almost reaching 6 900 kg

I think we are around or just under 4000kg

Andrewj - that's a gross physical production in KGs of milk solid based (mostly) on an intensive system comparison. Relevant in terms of this discussion but out of interest if you took a net revenue approach factoring input costs such as animal housing, the (unsubsidised) cost of feed and processing costs, what would the comparison look like?

I was more interested in a comparison of the volume of milk in intervention needing to be exported, to the total production of NZ, who used to be biggest exporter.
The Netherlands have issues with pollution and numbers will be reduced.

I have friend in France who changed his system to a full local sales. He transformed over several years to selling at markets. He now sells 1500 kg's a meat a week and dairy is on top of that with about 8o cows but mostly processed. He has a successful business and more demand than he can meet so he's trying to get other farmers to supply him organic and moving into wine.
I think people like him starting small could well be the future in Europe or rather back to what used to be. Markets are where people want to buy their food, direct from the farmer. It's hard for us so removed from the consumer and with so many restrictions. I think if we removed all regulation from the wine industry, including taxes then we would start to see similar trends here, with growers making wine and selling direct to friends and at local markets and over time becoming the new sensation locally and then internationally, but first you need to get rid of the red tape.



Guy in Christchurch whose blog I've followed for several years now dairy farming on a very small scale.


Thank you for clarifying the situation. AndrewJ etc.

I used to work in the Industry, but that was many years ago on the Computer side.

You have confirmed my suspicions. I had a grain of doubt, but one thing leads to another.

It does not compute...too well....when overloaded, Fat chance of a quick reset.

Thanks for the link, thanks for all the input. As always, much appreciated.