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Commodity prices fall for 6th month in August, as dairy prices slide

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 percent last month, and is now 12 percent below February's record high. Whole milk powder dropped 15 percent in the month, paced by a 13 percent decline in skim milk powder and a 10 percent 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 percent. 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 percent at the GlobalDairyTrade auction since the start of the year, causing Fonterra Co-operative Group [NZX: FCG] 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 percent in the year.

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

Meanwhile, beef increased 13 percent, to a new record high. Aluminium prices advanced 4 percent to an 18-month high and wool prices rose 2 percent. 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 percent in August, reflecting the month's 0.9 percent decline in the trade weighted index, which is a measure of the dollar against a basket of New Zealand's major trading partners' currencies.


Comments and questions

Ah, but our RB 'Behind the curve' NZ will wait for the housing sector to crash and NZ goes into recession before deciding what to do next.

Have to live up to Don Brash's record of inducing a double dip recession this decade, see?

Its the NZ way where little accountability resides.....a band aid after the horse bolts and ignore the consequences. It was always obvious that there was limited sustainability down this path. Those who push it and rely on 'China trade' prefer to turn a blind eye to risks and operate on the old adage "make hay while the sun shines". Then use the short term results to spin how wonderful they are, take higher pay packets and then exit stage right as it all falls apart. NZ seems to never learn.

It is not the Reserve Bank's fault that the National Government has looked the other way when Auckland's housing prices were going ballistic.
The Government had many tools at their disposal to target the housing market without damaging other sectors.
They chose to do nothing, Why? because of self interest.

right on "And Justice For Al"l and "Patch",
The RB's focus is only on house prices in Auckland, caused primarilly by too many immigrants, and secondly by cost of land due to red tape.
Lifting interest rates accross the country, to solve an Auck;land problem is flawed in every instance, the collateral effect is to tighten business working capital which is the fore runner to recession. We are there now!!
Mr Wheeler is prepared to sacrifice the whole economy to try to control an Auckland problem that Govt could solve over night with an Order in Council - send the immigrants to anywhere but Auckland, buy the land and build the houses as Savage did = just do it
"there are none so blind who can not see"