Dairy prices rise; US inflation jumps; Canadian house prices slump; China electricity production up strongly; WTO rules against Airbus; German growth slows; UST 10yr at 3.08%; oil up and gold drops; NZ$1 = 68.6 USc; TWI-5 = 71.5

Here's our summary of key events overnight that affect New Zealand, with news benchmark interest rates have jumped sharply.

Firstly however, today's dairy auction sold a lowish volume of 18,161 tonnes but prices rose +1.9% in USD terms. All the main volume lines brought price rises, but the central WMP price was only up +0.2%. On the other hand, SMP rose +3.0%, butter was up +2.4% and cheese was up +4.4%. This result will be boosted by the sharply lower NZD, and that brought an overall rise in local currency terms of +4.0%. Over the past four auctions, prices have risen +3% in USD terms and +7.6% in New Zealand dollar terms, so that will start to have an impact on farm gate pricing outlooks.

Data on American retail sales for April showed only a small rise but it was fast rising petrol prices that cut into discretionary spending. That is an inflation signal, and both the greenback and benchmark interest rate yields rose on the expectation this will encourage the Fed to raise rates sooner or more often. A NY Fed survey backed up the inflation signals. Wall Street is down almost -1% for those same reasons. Despite the small retail sales increase consumer spending appeared on track to accelerate after slowing sharply in the first quarter.

Exports from US West Coast ports hit an unusual high in April as shippers raced to get their goods away and cleared "before the gates close". At the two huge Los Angeles ports, they jumped +12% year-on-year.

Canadian house prices plunged -11% in the year to April. The volume of sales dropped almost -14% compared to the same month a year ago and the lowest level since 2011.

In China, new data out late yesterday shows that industrial production rose more than expected in April, but retail sales growth slipped surprisingly as did new business capital investment. But electricity production was +6.9% higher in April than a year ago. This is often used as a marker for the real growth in their economy, and the April rise was sharply higher than the +2.1% March rise.

China's jobless rate in April was said to be 4.9% in urban areas, similar to the 5.0% in April 2017. And their average salary was ¥45,761 or NZ$9,900 on the same basis, which is up +6.8% in a year, China claims.

At the WTO, they have ruled that the European Union paid billions of dollars in illegal subsidies to Airbus. That paves the way for American retaliation.

Meanwhile, German economic growth rose +1.6% in the March quarter from a year ago, below expectations and well below the +2.3% rise in the final quarter of 2017.

However, overall EU economic growth has come in at +2.5% for the same Q1-18 period, and that is unchanged from Q4-17.

The UST 10yr yield is now at 3.08%, up +9 bps on the American inflation prospect. The Chinese 10yr is at 3.72% (up +1 bp) while the New Zealand equivalent is at 2.77% (up +4 bps).

Gold is down sharply to US$1,291/oz in New York. That is down another -US$23 today.

Oil prices are up again and are now just under US$71.50 and the Brent benchmark is now just under US$78.50/bbl.

The Kiwi dollar is much weaker again, this time mainly because of a surging greenback. It is now at 68.6 USc, another ½c drop overnight, and the lowest since December 2017 and approaching its two year lows. On the cross rates we are at 91.8 AUc and 57.9 euro cents, both similar to yesterday's levels. That puts the TWI-5 just under 71.5.

Bitcoin is now at US$8,519 and that is down -2.7% from this time yesterday.

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32 Comments

Good article from Brian Rudman this morning - yet another bail out for farmers - what other industry gets the tax payer to front up for it mistakes and pay through the roof for its products? Glad I gave up milk years ago.
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12051783

Socialism seeing a sudden resurgence in popularity in the farming sector vs. late last year?

Meh, right w(h)ingers have always been keen to socialise their losses and privatise their profits. Nothing new about it, just human nature and hypocrisy at work.

Help if he new what he was talking about. NAIT was compulsory for farmers but lacked enough funding to do the job required. I personally had cattle with lost tags, perhaps someone knows a way to then identify which is which, that is where the non compliance comes in, it is a flaw in the system. An animal dies but is not removed sometimes because we cannot find the animal on the data base.
What real farmer sells animals under the counter, I never have and don't know anyone that does, you are talking lifestyle block owners perhaps.
If you want to see blank faces you should be around when I ask some questions of NAIT staff, or perhaps when the computer illiterate farmer does the registration on the phone, 100 cattle, each with it's own 12 digit tag, all recited over the phone with no mistakes.
NAIT has failed but it always did, the problem has nothing to do with NAIT, could be second hand farm machinery, could be someones boot, don't underfund NAIT and expect results or bureaucrats to ever take responsibility for failure.

"What real farmer sells animals under the counter, I never have and don't know anyone that does, you are talking lifestyle block owners perhaps." ....really you actually believe that statement?

Yes I do, we do home kill but never sell.

"computer illiterate farmer does the registration on the phone, 100 cattle, each with it's own 12 digit tag, all recited over the phone with no mistakes"
Should not be in business then if in 2018 you are still computer illiterate! I tire off some of the old boomers who insist computers are to hard..if you can read then you can operate a computer.

Sorry, using phone as our internet is down, makes NAIT hard to do too.

The average age of farmers is 60, lots of farmers start working at 4am and finish at 6pm 7 days a week

Railways and airlines plus banks....perhaps?

I may be wrong but I believe the goverment was paid with a shareholding in those three cases.
Unfortunately Farmaid looks like a never ending support for a twilight industry.

Because we'll be getting our sustenance from blockchain soon?

I havent seen blockchain in the supermarket, is it like tofu?

I've seen blocks of anchor cheese.. what use is an anchor without a chain or rope? :)

Rudman's article is ill-informed bollocks.

According to him 70% of farmers have "thumbed their noses" at NAIT. Well that's strange, because you can't send any animal to the saleyards or freezing works without correct tags. I'd imagine that would make it hard to be in the business of farming. But then according to him there's a "thriving black market", that's not just a dairy farmer selling a couple of calves for cash, it must be organised crime cartels all set up to kill and process these vast numbers of cattle and farmers operating outside the system.

Yesterday you reported "Canadian house prices rose moderately", today you report they have plunged. What dramatic event overnight did I miss that caused such a sudden turnaround?

Both statements are in fact true. Maybe time to read the linked article?

Average sales price declined 11% YoY, HPI increased 1.9%. Sales volume cratered... interesting times ahead.

On a related note, conversations with a few US mortgage brokers suggest that interesting times may be ahead for US as well, many are seeing parallels to 2007 in terms of the rapid change in housing confidence in US.

Roubini's "mother of all carry trades" penned all the way back in 2009 provides some interesting insight into a rising USD and asset pricing.

“this will encourage the Fed to raise rates sooner or more often”
Or being part of the volatile fuel and food component will the Fed simply “look through” it – declaring nothing to see.
Failing that perhaps they could go for substitution bias – the consumer will simply now fill up with electricity instead of petrol.
I’m sure if they look around hard enough they’ll find a reason not to raise.

“A lot of stock are actually transferred from farmer-to-farmer and they don’t even worry about it" So the blame lies with
A: Farmer
B: Government

It's the system

It's a bit of everything that's been going on down on the farm over the past 20 years, I suspect.

Whereas we should have been providing incentives to retire non-productive (i.e., fundamentally non-profitable) land and land in sensitive catchments (i.e., surrounding freshwater lakes, low-land/braided rivers, etc.) we seem to have gone completely the opposite way.. that being we've used conversion and intensification as a means to try and make this land unsuited to agriculture 'work' from a profitability point-of-view. And I count the proliferation of lifestyle blocks as a part of that land-use intensification.

How many LSBs do we have registered for GST for the [perceived] tax benefit, yet they are never going to be properly productive agricultural businesses that provide benefit to the taxpayer. And as you mentioned, Andrew, these are likely to be a substantial part of the calf rearing 'business'. And I say 'business' with a heavy dose of skepticism as I don't know that there has been much profit in that for years, and the same goes for many LSB graziers. I'll bet you in your area a number of the feedlots being established are by LSBers pursing a tax minimization scheme against their townie earned 'real' jobs.

NZers really need to do some soul searching, as the obsession with tax minimization schemes seems to me to be at the root of many, many, many of the problems we face today.

Kate, as far as farming goes I think it was more the debt fueled growth. There is a lag between when you spend the money and when the production starts and it's always a bit disappointing to get there only to find the prices have tanked and no one needs what you produce anymore. I heard of farmers buying a property and using the GST refund as the deposit, I heard of bank managers hiding in bars listening to any rumors of sales,or new blocks on the market, looking for new clients, I heard of banks saying 'just go for it we have your back' remember the ASB report that the milk price was going to stay over $8 and could go over $10

We have this flawed belief that high asset prices make us rich, in reality we are richer when we can buy those assets for less, our money buys more.

A lot of what is going on is about safe guarding those asset values now the income is not there. No one wants a Lehman bros or Bear Sterns event.

The competition from Russia and Brazil will continue to grow, it's just how we fit into the puzzle.

"The increase in Brazil's farm production has been stunning. Between 1996 and 2006 the total value of the country's crops rose from 23 billion reais ($23 billion) to 108 billion reais, or 365% and they continue to grow. Brazil increased its beef exports tenfold in a decade, overtaking Australia as the world's largest exporter. It has the world's largest cattle herd after India's. It is also the world's largest exporter of soybeans, poultry, sugar cane and ethanol. Moreover, Brazil supplies a quarter of the world's soybean trade on just 6% of the country's arable land."

“There are a lot of very switched-on Brazilian farmers who aren’t afraid to get stuck in to get stuff done,” said former Nuffield Australia foundation chairman and Quirindi farmer, David Brownhill.

He was only recently back from an eye-opening trip to Brazil when asked to host the Agrileader group for half a day.

“Their big farms are really big - 350,000ha is not uncommon - and there’s still 100m hectares of agricultural land which can be opened up for cropping alone,” he said.

A lot of what is going on is about safe guarding those asset values now the income is not there. No one wants a Lehman bros or Bear Sterns event.

Indeed. I'm normally an optimist but I'm thinking that objective is rather futile.

I'm keen to see a government backed rescue plan but it ought only to come with a re-set of thinking and practice. And it needs to be a win-win, for farming and for the environment. Interesting in that a lot of my students are young, hopeful future farmers - their forward thinking (i.e., the future they envisage) is very different than older farmers. I guess the big difference is, they don't yet have the debt.
.

Federated Farmers opposed the NAIT system from the outset

Federated Farmers, a farmers membership organisation, opposed the NAIT system saying that it will impose extra costs on farmers and will not result in any benefits.[2] Farmers also fear that the NAIT scheme will be used to impose a greenhouse gas emissions tax under an emissions trading scheme. A Federated Farmers survey found that 2% supported NAIT and 80% opposed it. A NAIT working group claimed that there would be on-farm benefits.[3]
https://en.wikipedia.org/wiki/National_Animal_Identification_and_Tracing...

The savings probably outweighed the costs of culling

That number 2. objection is telling. I've always been intrigued by Fed Farmers vociferous objections to LG rates, and hardly a peep out of them where income tax is concerned.

Why? I've decided it's because for farmers, paying rates are unavoidable but paying income tax is avoidable.

Canada is now being closely watched as a poster child in the late economic expansion cycle. Their job growth has stalled, GDP growth is faltering, housing sentiments have floored and productivity is non-existent.

Financial Post did a piece recently blaming the mismanaged growth on the lack of aggregate spending on research and innovation. They believe that years of cheap money drawn into unproductive assets (houses) promising quick returns has kept investors away from research spending. Sounds familiar?

The farmers are clearly to blame for the mess they find themselves in , for not embracing NAIT

The COL Government is to blame for their inaction, dereliction of duty , and failure to take remedial steps quickly.

It's pointless bringing in a system that %80 of farmers don't want. They should have made it voluntary and then expanded once they had ironed out all the issues. It will still go no where without farmers on board. So get farmers on board, start slow, spend the money, make it simple make it foolproof.
We have had Animal Health Board TB cards for years and they accompany all livestock sales and transfers. Nait added a lot of complexity and time, I know many farmers who now scan all animals before they go to works, this is because often the works could not read a lot of tags, when you are pushing 8 animals a minute past you on a chain it has to go smooth. Then you get a fine from the works for no tag or unreadable tag, if you scan your own and then jump on line and register them as killed then it saves the fine, however those cattle could go anywhere, perhaps to some nirvana in the sky, no one would know.
Then you could just register an animal as dead and then sell it, or perhaps send it to a fictitious works, you could get a round this by sending someone out to check on every dead animal, preferably a Vet in case it's something contagious, 10-15 vets in every small town dedicated to checking dead animals should do it. They would need a 4x4 and have to travel across some difficult terrain often in winter not possible to get a lift with the farmer due to Heath and safety. Then a GPS to locate site and record place of death cause etc. ,even better use helicopters.

The COL Government is to blame for their inaction, dereliction of duty , and failure to take remedial steps quickly.

Haha...wow!

Seriously, though, surely not...you cannot be making this comment with any seriousness. Surely you must be aware of basic facts around this issue including when most of it was taking place?

I'm worried you're losing the plot.

yes I agree. To think the govt is the cause of inaction is absurd.

The cause is due to waiting for the best advice from the science provided. In effect, advice from systems that have been lacking due to the farm lobby ruling the roast.

The same lobby that plundred our rivers,lakes and water ways for their personal benefit and at public cost.