31 Mar 2014

Trade surplus tipped to exceed $1b

11:45 am on 31 March 2014

The country's annual trade surplus is tipped to reach more than $1 billion over the coming months.

Official figures show a surplus of $818 million last month, almost double the previous February's surplus of $432 million. On an annual basis, the surplus was $649 million.

Infometrics economist Benje Patterson says it's expected to continue expanding over the coming months - not only are there very high production levels in the primary sector, he says, but commodity prices remain elevated.

Mr Patterson says dairy prices have begun to ease in some of Fonterra's forward price auctions but that won't flow into actual received prices for another few months, because Fonterra typically signs contracts about three months ahead of time.

In the month of February, the value of exported goods rose 17 percent, or by $663 million to $4.6 billion, compared with the same month last year.

Exports to China rose $388 million to $1.2 billion - a 49 percent increase on the previous February. China accounted for 44 percent of milk powder, butter and cheese exports last month, while exports to Australia fell $2.4 million to $718 million.

Driven by Chinese demand

Mr Patterson says it was an exceptional month for the primary sector and it's being driven by Chinese demand.

He says last year commentators attributed the spike in dairy prices to the drought but prices remained elevated even when New Zealand recovered from the drought and milk production returned to record levels.

Mr Patterson says surging demand from China is the key contributor.

"We've had comments over recent weeks from visiting Chinese officials saying things like a lot of land in China is sick, there's scarce water resources, and they're going to rebalance their focus in terms of what they're producing domestically towards staples such as your rice, wheat, and that they'll seek cooperation from international partners such as New Zealand to fill the void in terms of protein demand."

Imports rose 8 percent, or by $227 million to $3.7 billion, led by crude oil and capital goods such as transport equipment. Mr Patterson says import growth is moderate.