I am always intrigued by the kind of upbeat bullshit that we get out of our cowed public services these days. For instance the press release on the provisional Overseas Trade Index for the September 2014 quarter
The merchandise (goods) terms of trade fell 4.4 percent in the September 2014 quarter, due to export prices falling more than import prices, Statistics New Zealand said today.
The price of exported goods fell 4.5 percent, led by dairy and forestry products. Excluding dairy, the fall in export prices was about 0.9 percent. High meat prices partly offset the fall in dairy prices.
Huh? Talk about a false equivalence. Looking at the June 2014 Goods and Services spreadsheet, milk powder butter and cheese accounted for 23.3% of our exports by FOB value. Meat and edible offal was 8.3%. Logs and wood 5.9%. So a relatively small rise in beef prices is worth mentioning against a pretty massive fall in dairy prices which account for about a quarter of our exports?
But I guess that allows room for the government to get those nice headlines. Like James Weir in the Herald. “Beef boom partly offsets dairy dive“. Spinning under a National government we get good news first, bad news later. It starts like this…
Diving dairy prices have pulled New Zealand’s terms of trade off a 40-year high, statistics released today show.
But export beef prices hitting their highest levels in 12 years helped limit the impact.
Again, a peanut contribution from rising beef prices is somehow equivalent to a frigging disaster of a fall in dairy – exactly what National’s spin doctors ordered.
What is failed to be mentioned is that we are now heading for a record low in terms of trade. Looking over the last decade we see that we have had a very good first part of the year and a bad second half. THis year it will be an excellent first half and a catastrophic second half. Exactly as I anticipated last year. Next year it will just be catastrophic all year.
Essentially the dairy boom that National has been riding has dissipated in increased production world wide and a glut of inventory both offshore and here.
As for the “40 year high”… does anyone think that the Herald will be trumpeting the 40 year low. Look at the trade balance over the last 40 years and at the end of that graph. That really doesn’t look good for next year does it?
And it gets worse when you start looking through the details. For instance the Overseas Merchandise Trade for October. That shows that while our income has now flattened (and is likely to fall), our demand for imports has kept increasing.
Fortunately there is always Brian Fallow in the Herald with his understated “Terms of trade picked to fall further“. He seldom repeats press releases so he starts with the picture of reality..
Falling dairy prices have begun to undermine one of the foundations of the economic upswing, rising national income from the most favourable terms of trade for more than 40 years.
The terms of trade fell 4.4 per cent in the September quarter as a 4.5 per cent drop in export prices swamped the benefit from a 0.1 per cent fall in import prices.
It was the first decline in the terms of trade – a measure of the quantity of imports which can be funded by a fixed quantity of exports – since December 2012. It took the terms of trade back to its level a year ago, though that was a 40-year high then.
Economists see the latest decline as just the beginning, however.
Four-fifths of the September quarter’s fall in export prices is explained by an 11 per cent drop in dairy prices.
But less than a third of the slump recorded by Fonterra’s global dairy auctions since February has flowed through to the terms of trade data so far. The terms of trade data use the contract prices agreed before goods are shipped in or out of the country.
Then he gets on to the few minor bits of bright news. But at the end points out the short term view to next year.
Bank of New Zealand economist Craig Ebert said most forecasters including the Reserve Bank had long forecast a decline of around 10 per cent in the terms of trade by 2015.
“This still looks to be in the ballpark, even with the surprisingly big hit from dairy prices we’ve since come to know about.”
Surprising? That has been bloody obvious for years as being highly likely to happen. Given a really big market, good prices and a competitive international market – what did they think would happen? It invariably goes from good times to glut very very fast. As soon as it does, people start dumping their inventory for whatever they can get. Prices plummet like a rock.
If you want to get really depressed about the economy then look at Jamie Gray writing on the Fonterra dairy payout “Payout below $5 a kg picked”
Tomorrow will see the last GlobalDairyTrade auction before Fonterra releases its revised farmgate milk price forecast for 2014/15, and indications are that product prices will remain flat at best, say economists.
Fonterra’s board is set to meet early next week and bank economists expect the co-operative dairy giant to revise its current $5.30 per kg of milksolids forecast for 2014/15 to sub $5 levels.
Prices have fallen by close to 50 per cent since February, driven mostly by excess supply.
The payout peaked at $8.50/kg last season. Now we are looking at something like $4.85/kg for the coming season. Ouch.
This is why the National party policy of favouring rentiers, extractive industries and commodity sales in NZ is and will be a long-term economic failure for the bulk of the population (ie people who don’t contribute anonymously to National’s donations).
We need productive export jobs using our most sustainable resource – our people.