Hive News Wednesday: Whole milk powder prices rise 19.8%; Kawerau house values up 49.3%; Money laundering bill delayed

Copyright Lynn Grieveson / Hive News

It's a particularly good morning for dairy farmers and the local economies around them, including Southland, Canterbury, Manawatu and Taranaki, which have been more subdued than the rest of the economy in the last year because of low dairy prices.

Wholemilk powder prices, which are the key ingredient in calculating Fonterra's milk payout, rose 19.8% to US$3,317/tonne in last night's Globaldairytrade auction -- its highest level since July 2014. Economists said the result suggested a payout of over NZ$6/kg was possible by the end of the current 2016/17 season if these prices were sustained. The current forecast is for a NZ$5.25/kg payout. A NZ$6/kg payout would be substantially over break-even levels for the first time in three years.

The sharp rise followed Fonterra's quiet announcement (highlighted in Monday's Hive News ) it had cut its milk production forecast for the 2016/17 season by 63 million kgs or 4.1% to 1.46 billion kgs because of a very wet spring that had reduced output by 14% in the Waikato. The 1.46 billion kgs, if achieved, would also be 6.8% below production in the 2015/16 season.

Globaldairytrade observers also noted a big lift in demand from Chinese buyers. The overall GDT Index rose 11.4% to US$3,327/tonne, with butter milk powder (down 5.4%), cheddar (up 0.9%), lactose (down 4.0%) and skim milk powder (up 6.5%) helping to soften the gain on the overall index.

Housing inflation slows, but still high

QV yesterday reported annual house value inflation across New Zealand fell to 12.7% in October from 14.3% in September, which was due in part to slowing of Auckland's annual inflation rate to 13.8% from 15.0%. QV cited the effects of the Reserve Bank's 40% deposit requirement for landlords, which was formally introduced from October 1 but was effectively in place from late July.

However, a closer look at the figures show the slow-down is more evident in Auckland than in the cities benefiting from the 'halo effect', such as Whangarei (up 23.9%), Hamilton (25.0%), Tauranga (27.0%), Napier (18.0%), Hutt Valley (22.6%), Wellington (21.3%), Queenstown (29.8%) and Dunedin (13.0%). Some specific areas remain immune from the Auckland effect, including Christchurch (4.7%), Buller (down 3.2%) and Westland (0.0%).

Some other smaller towns are benefiting from an overflow of first home buyers and rental property investors being pushed out of the bigger cities by higher prices. The biggest outlier is Kawerau, which rose 49.3% in October from a year ago, and Wairoa, which saw its values rise 12.9% in the last three months and 12.1% from a year ago.

Despite the apparent LVR-driven slowdown, average values in Auckland also still rose by NZ$52,607 or NZ$584 a day to NZ$1.045 million (up 5.3%) in the last three months.

Money laundering bill delayed

Also of interest to those trying to understand demand in the Auckland housing market, the Government's push to widen the tougher Anti Money Laundering rules from banks to real estate agents and solicitors has been put in doubt.

The Government decided in May during the heat of the Panama Papers publicity to accelerate 'phase II' of its AML reforms, including a new plan to table legislation this year and pass it into law by mid 2017. See our May 10 Hive News for more detail.

Yesterday Amy Adams admitted in Parliament the Government had decided to delay the introduction of legislation until early next year, but still planned to enact it before the next election in late 2017, largely because of concerns about compliance costs being passed on to property buyers.

Grant Robertson asked Adams about a debate over the legislation in a cabinet sub-committee last week, arguing the Government had caved in to pressure from the real estate industry by delaying the tabling of legislation.

Adams earlier told reporters she had not had any correspondence or met with real estate agents.

"I am sure that they will have concerns about how this will affect them," she said.

"I have said all along this is a regime that brings with it significant compliance costs on new sectors, but that is what it is, and we are working to get the legislation in place within the timetable that the Prime Minister and I set out some months ago."

She denied it would be necessary to table legislation this year to ensure the passing of legislation by mid-2017.

"You can move it through the House in the time frame that we think is necessary. We want to have it place by the middle of next year. That hasn't changed. What we are working through at the moment is all of the details of formalising and finalising that policy and we'll make more announcements in due course."

She said in Parliament the introduction of the legislation would now be delayed to next year.

"There are far reaching implications for a large number of New Zealanders from these reforms. The timeframe that we've been consistently working towards is to have the bill passed by mid 2017 and this hasn't changed. However, introduction of the bill may now occur early next year to ensure that we do what we can to minimise the cost of the reforms to New Zealanders," she said.

"This is a regime that will have considerable compliance costs on ordinary New Zealanders and on this side of the house we want to ensure that those costs are no more burdensome on average Mums and Dads than they need to be."

Robertson said the Government had taken its foot off the accelerator as soon as the heat over the Panama Papers had gone off.

“When the heat was on National earlier this year in the wake of the Panama Papers, John Key committed his government to fast-tracking legislation to widen the groups covered by anti-money laundering provisions. But now with public attention elsewhere he has quietly slammed on the brakes, and it now looks like there will be no change in the rules before the next election," Robertson said.

“It seems that once again National is putting their interests ahead of New Zealand’s. As happened with earlier attempts to tighten the rules on the foreign trust industry that were scuttled by people like John Key’s lawyer, industry insiders are putting pressure on the government to back-off or water down proposals," he said.

The Government decided earlier this year not to accept John Shewan's recommendation that round 2 of the AML laws be put into force by the end of this year.

The Ministry of Justice said in its consultation paper in August (submissions have now closed) that it expected legislation to be introduced before the end of this year and passed by July of next year.

The Government delayed the consideration of round 2 of the AML reforms for two years between 2014 and early 2016, before the Panama Papers publicity forced it to put the reforms back on track. Round one of the reforms applying to banks and fund managers were introduced in 2013 and banks have been big proponents of including estate agents, solicitors and accountants in the regime.

In other political and economic news...

David Cunliffe announced he would not stand for re-election in the New Lynn electorate in the 2017 election. He said he would join Auckland-based management consultancy Stakeholder Strategies after the general election, adding he did not want to trigger a by-election.

Nick Smith announced changes to steel mesh testing rules from May 30 next year. This followed Phil Pennington's excellent series of reports on RNZ about problems with steel mesh testing.

Have a great day