Export price falls continue in July

Dairy prices were the main driver of July's decline, ANZ economist Steve Edwards said. Photo / Supplied

Led by dairy products, ANZ's export commodity price index has fallen for the second month in a row.

World prices for a trade-weighted basket of New Zealand export commodities fell 0.8 per cent last month, which was amplified by a stronger exchange rate into a 2.8 per cent decline in New Zealand dollar terms. But these falls are from record levels.

The world price index has only been higher three times - in April, May and June this year - while the New Zealand dollar index has only be higher twice, in May and June this year.

Dairy prices were the main driver of July's decline, ANZ economist Steve Edwards said. Whole milk powder prices fell 12.6 per cent and skim milk powder 2.7 per cent. Butter was also down, 1.4 per cent. The other commodities to decline were beef (down 3.4 per cent), sawn timber (2.8 per cent) and logs (0.9 per cent).

Even with the latest decline dairy prices are 54 per cent higher than they were a year ago, according to the ANZ index. Dairy products represent 38 per cent of of commodity exports.

The Treasury said yesterday that last month's 13.7 per cent decline in Fonterra's online auction price index was part of increased volatility in dairy prices this year.

"Fonterra's forecast payout of $6.60 per kilogram of milk solids for the 2010/11 season remains intact."

It said concerns about a global slowdown were focused on Europe and the United States but New Zealand's trade was increasingly weighted towards Asia and Australia.

China's growth was forecast to slow but its economy was still expected to expand by around 10 per cent this year and 9 per cent next year.

And while there were risks around those forecasts, the Treasury said it did not expect any of them on its own to derail the Chinese economy in the near term.