A large fall in log prices contributed to a fall in the
price of exported goods. Photo by Gerard O'Brien.
New Zealand's terms of trade remain at a more than
40-year high despite weakening prices for dairy, the country's
Bucking market expectation of a 3.5% fall, the terms-of-trade
index rose 0.3% in the June quarter.
That was the lowest of six consecutive quarterly rises and
was driven by falling import prices. It was now 1.3% below
its all-time high in the June 1973 quarter. However, export
prices have started dropping and were expected to fall
steeply over the second half of the year.
The price of exported goods fell 2%, with dairy prices
falling 4.3% and forestry product prices down 6.5%,
influenced by a large fall in log prices.
Export volumes recorded their largest fall since the March
2008 quarter, due to falls from high levels in key primary
Seasonally adjusted meat export volumes and forestry volumes
both fell 8.3%, while dairy volumes fell 2%. Prices for
imported goods fell 2.3%, while seasonally adjusted import
volumes rose 3.6%, with capital goods leading the rise.
Westpac senior economist Michael Gordon said the fall in
dairy export prices over the quarter seemed mild, given that
world prices in the fortnightly GlobalDairyTrade auctions had
fallen by about 40% since February.
However, the average time lag from pricing to shipment of
dairy exports was around three months, which meant the fall
in prices did not show up in the trade figures until late in
the June quarter.
The bulk of the fall in dairy prices would be captured in the
September and December quarter instalments of the terms of
trade, Mr Gordon said.
Westpac expected the terms of trade to fall by about 10% over
the next year, though it saw the recent softening in export
prices as a temporary factor as Chinese buyers worked through
a build-up of inventories.
The recent weakness in dairy prices was the result of a surge
in global milk production colliding with a softening in
Prices were expected to stabilise and start recovering by the
end of this year, he said.
In Westpac's weekly commentary, economists said they would
eventually expect to see falling international dairy prices
put downward pressure on prices of dairy products locally.