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Eyes on Fonterra; Canada cuts rates; US and Yellen upbeat; China growth meets target; Greece on knife-edge; UST 10yr yield 2.36%; oil and gold fall; NZ$1 = 66 US¢, TWI-5 = 70.8

Eyes on Fonterra; Canada cuts rates; US and Yellen upbeat; China growth meets target; Greece on knife-edge; UST 10yr yield 2.36%; oil and gold fall; NZ$1 = 66 US¢, TWI-5 = 70.8

Here's my summary of the key issues over night that affect New Zealand, with news of sharp falls in commodity prices, and dairy prices in particular.

Today's dairy auction has undermined the payout forecasts for the new season and will probably go some way to undermining the confidence levels in the local economy too. Certainly, no one is now talking about a 'rock-star economy'.

The only saving grace is that the exchange rate is doing its job of providing some stabilisation of the situation.

In US dollar terms, dairy prices fell for the ninth consecutive auction, reaching an average of just US$2,082/tonne. That is the lowest level since June 2009. Don't forget they were at US$5,042/tonne in February last year.

Overall, prices are down -10.7% from the last auction two weeks ago, down -25% from the beginning of the year, down -42% from this time last year.

In New Zealand dollar terms the falls are not as fierce but they are significant all the same; down -8.7% from the last auction, -12% from the beginning of the year, and -22% from this time last year.

The key Whole Milk Powder price fell a whopping -13.1% from the previous auction.

Banks and policy makers have major decisions on their hands. Dairy farmers have even bigger ones. The rest of us need to take note as well. Everyone will be watching for signals from Fonterra. NZX says the payout should now only be $3.17/kgMS !

Elsewhere there was news as well. Canada cut its policy rate to 0.5% from 0.75%.

Industrial production, prices and confidence all came in positive and better than expectations in the US. Janet Yellen is still talking of rate rises this year.

China's economy grew an annual 7% in the second quarter, also beating analysts' forecasts, though its volatile stock markets took a sharp dive again yesterday in a reminder of the threats to their policy and stability.

In Europe, everyone is waiting for the Greek parliamentary vote on the bailout package. It is no sure thing. Their government is splintering before the vote. The unstitching of the deal is a real possibility and markets are nervous. Panic buying is gripping Greece as immediate fears for the future rise.

In New York, the UST 10yr yield benchmark stumbled again after a sharp dip mid-session; it is currently up to 2.36%. Greece is weighing on markets as we speak.

Oil markets are also lower. The US benchmark price is now just above US$51/barrel, and Brent crude is just above US$57/barrel. Stocks of petroleum products are high in the US at present.

The gold price is down again too, sharply so, now at US$1,145/oz.

Following the dairy auction, the Kiwi dollar sank. We are now at 66 US¢, at 89.6 AU¢, and at 60.3 euro cents. The TWI-5 is at 70.8, its lowest level in three years.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here »

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38 Comments

More pressure for further interest rate cuts in NZ?

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Reserve Bank will cut the OCR by half a percent within a week! The rockstar economy now has throat cancer!

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what is NZ going to use to pay the interest bill?

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house and farm sales to foreigners...

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What happens when we've sold all our land and assets?

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You'll be Neo-colonised.

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I'd bet that they won't cut the OCR before 7:37 am on the 23rd of July :P. A cut will probably get done closer to 9 am on the 23rd of July :P

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.5 this time?

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Oh dear!
More opportunity for our wonderfully adept Government to show their financial nous in getting us through this one.
Never fear. John and Bill are here.

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Squeaky bum time?

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Looks like those futures traders who saw a 10% fall in Dairy, were spot on! " Not too worry. Cut interest rates ( sarc)....that will solve the dilemma. We are just in a cyclical downturn, after all" ( NB: No we are not. It's structural downturn - everywhere. We have far too much capacity that's borne of malinvestment from cheap debt)

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The Plan was to turn all arable land into Dairy farms in NZ.
Now what? Sell all the Dairy farms offshore?
Can banks lower interest rates fast enough to save some farmers?

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The phrase "conversion to dairying" will not be a phrase used in future.
Its amazing how quickly people flock into to any market that experiences a boom.
I predict that the same will happen to Ak property. People are wading into it right now. The govt, the council, private people, and now even the NZ super fund is contemplating it! The alarm bells are ringing loudly....

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Super fund really must stay out of it for the time being.

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Haven't you been watching this week how instructions from Head Office in Beijing work?
"Adrian, mate. Get out there and buy the Auckland property market. Oh. And when you have, you can't sell it until we say so"

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bill English will get his 2% inflation no problem now, with the TWI dropping to all time lows the imported inflation will sweep in. then what will the RBD do they wont be able to raise as it will tip us into recession.
well done government see what sitting on your hands for the past few years gets you.

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And we import lamb and beef from Australia , think minister primary industries should be resigning this morning

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That is confused thinking. Don't farmers want consumers offshore to buy from us? On what basis would you block our consumers making a similar free choice? (Other than being two-faced about it?) Open markets always give New Zealand benefits. Closed markets always disadvantage us. We need to be grown-ups about trade.

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I am sure TPPA will embrace embedded global generic drug purchase rights for Pharmac - right?

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But MPI do need to take some responsibility.
The export goal
The goal is to double primary industry exports in real terms from $32 billion in June 2012 to over $64 billion by 2025. Learn more about how we plan to achieve this.

https://www.mpi.govt.nz/about-mpi/our-strategy-2030/the-export-goal/
http://www.radionz.co.nz/news/rural/275855/sector-behind-on-export-targ…

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what a 15 million population by 2050?

Sounds like a plan! Keep the flood gates open.

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lol. responsibility? government? they followed the reports and made best decisions they could with in their mandate. all tax gather, no responsibility

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David Chaston calls his argument 'grown up'. If he were right everything would be fine.

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Actually no. The obvious answer is,

a) it can be surprisingly hard to buy NZ produce as it commands a premium offshore. Take fish, I have hardly bought any this year, I simply do not see any of good enough quality. On occasion it is yet its a higher priced than fillet steak! or that chinese, vietnamiese, thai fish is for sale here in NZ. Seems crazy that their fish is cheaper despite airfreight than our own. In effect of course the CO2 impact/cost is being socialised/not paid.
b) Fonterra? I seem to recall saying that NZers needed to pay International prices for their produce. of course NZers dont earn International wages. I seem to recall that NZers consumption of milk products is substantially down after such high prices?

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open markets do not give us benefits.
take a look at the clothing trade - that got opened up and in 1 year half of NZ clothing jobs had gone. Three years later 90% of the business, jobs and support jobs gone.

Trade with Russia did us well as did with Iran and Iraq. All three very controlled markets. In fact only did such stability help NZ it helped all four countries.

Just check the reports about Disney staff in the US having to train their cheaper unqualified replacements - that's open market for you.

Every time I hear someone saying things "like grown ups" etc in trade - they clearly mean a few individuals seek to make a profit, and cost to everyone else. Last time I checked being "grown up" was a euphemism for responsibility not personally greed and opportunism

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I agree NZ is a huge benefactor offree markets; free markets & the invisible hand - what noble & brilliant concepts.

It's a real shame free market finance died in the West in 2008... Adam Smith & Issac Newton would be horrified at today's state of affairs. With all the keynesian policies... debt upon debt cannot solve debt... eventually the cannot be kicked & the inevitable run on central banks has started with the Riksbank... batten down the hatches.

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I mean we have so few sheep and beef farms and too many dairy farms

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Yes, sheep and cattle that don't require a few milliion bucks worth of development to farm. I wonder what use all the flash milking sheds might have other than milking cows

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...those vats could easily be converted in meth labs - rocket fuel for a rockstar!

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Lol a rotary shearing shed

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What's the panic - Bill English says Dairy is only a minuscule part of the NZ economy - almost irrelevant when compared to the flourishing immigrants building housing for immigrants Ponzi in AKL.

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that must be why hes building up his airpoints trying to arrange more to come in

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Caesar is fiddling with ponytails while Rome burns!

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Who remembers those NZ dairy ads a few years back. Come on down and get into dairy. Hahaha.

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25% of milk from hamilton regions, by far the biggest milk producers in NZ (taranaki 10%, north cant 10% the other players of note)... All the aucklanders rushing to buy IP's there should tread carefully.

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Just reading a Lodge flyer stuck under my nose -Hamilton- one suburb only - 3 recent sales. 2 x RV $345,000, Sale P $425,000; 1 x RV $375,000, SP $450,000.

At least the sharemilkers will get a decent price as they cash out their asset banks - but should they hurry or wait for more?

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http://www.stuff.co.nz/national/politics/opinion/70251514/is-labours-au…

''The analysis found, for instance, that those surnames weighted as Indian were represented among buyers in roughly the same proportion as they are represented in the Auckland population - about 8.6 per cent.

Labour also had data from Northland, though this doesn't appear to have been made public yet.

That showed a rough match between the buying by ethnically-attributed surnames and the resident population.

It was the ratio of Chinese-surnamed buyers in Auckland to the resident population - something like four to one - that stood out starkly.

Is that racial profiling? Or just one of the only ways to assess overseas-based buying, given the dearth of data collected about buyers?

Feel uncomfortable then. Unpick the politics. But don't deny the data shows there is an issue.

As former deputy prime minister Jim Anderton used to say sarcastically "don't let the facts get in the way of your prejudices". Or vice versa.'''

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People got to remember: As long as Fonterra farmgate price is directly linked to the gDT WMP, drop in WMP is a good thing for Fonterra. All the other products and brands Fonterra has, it means they only have to pay deflated prices for WMP (unless that's how they're holding up the GMP).

And wile Fonterra won't be making big profits on direct WMP bulk supply they are passing most of that loss through to their farm suppliers.

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