I wrote a few weeks back how New Zealand was experiencing an epic commodities crash in the form of dairy prices, which had plummeted by more than 50% since February and more than 70% since late 2013 (chart via The AFR):
Well, now the situation appears to have taken a turn for the worst, with New Zealand commodity prices suffering their biggest monthly decline on record, according to ANZ:
New Zealand commodity prices fell at their fastest pace on record in July, notching up a fourth straight month of declines to the lowest level in almost six years, led by dairy.
The ANZ Commodity Price Index for July fell 11.2 percent to the lowest level since October 2009, and is 27 percent below year earlier levels. Thirteen of the 17 main commodities declined.
The drop was led by a slump in dairy prices, which are down 23 percent from June to the lowest level in more than 11 years…
The NZD index fell 6.7 percent in July, the third-largest monthly fall since the series started in 1986. The trade-weighted index declined 3.6 percent over the month, helping mitigate a “gargantuan fall” in world commodity prices, but the local currency is not moving fast enough in response to shifts across commodities, ANZ said.
ANZ Bank, which is the largest lender to New Zealand dairy farmers, is also forecasting that dairy prices will remain some 5%-8% lower on an ongoing basis than they have been in the past:
ANZ’s economists say the current bout of weakness in global dairy prices appears to reflect some “structural shifts” in the marketplace that will have implications over the medium term.
“That combination is enough to lower our expectation of where the milk price will sit on average over the cycle by 25-50 cents (from the nine-year average of $6.35/kg MS),” the economists say.
“Generally the equilibrium price for wholemilk powder has been considered to be around the mid-US$3,000/t mark and has averaged US$3,400/t over the last nine years.
“We now expect a range of US$2,800-3,400/t (mid-point $3,100/t) in the medium term due to these structural forces (though volatility is expected to continue to see prices cycle outside this range). This is 10-15% lower than previously assumed”…
“So we are left with a 5-8% fall in dairy incomes and remember that’s not just a one off; it’s expected to be sustained…”
Sucks to be a commodity exporter right now.
