Talk Money with Tony Field – August 7, 2015

The Huntly power station (file)
The Huntly power station (file)

The fall in dairy prices is part of a global slump in food prices.

The United Nations Food and Agriculture Organisation (FAO) says global prices are at a six-year low.

Prices slipped last month due to sharp falls in both dairy products and vegetable oils. That offset rises in prices for sugar and cereals.

The FAO food price index has fallen to 164.6 points. That is 1 percent down on the previous month and 19.4 percent lower than a year ago.

It means global prices for major food commodities are at their lowest average monthly level since September 2009.

The index tracks prices for cereals, dairy, sugar, vegetable oils and meat.

The UN says dairy prices fell 7.2 percent in July "mainly due to lower import demand from China, the Middle East and North Africa amid abundant EU milk production which has resulted in good availability of dairy products for export".

Vegetable oil prices were down 5.5 percent.

Cereal prices rose 2 percent from June, but are still 10 percent below where they were a year ago.

Sugar prices increased by 2.5 percent from June.

Meat prices were almost unchanged.

The announcement that Genesis Energy will close its two coal-fired generators at the Huntly power station is the end of an era.

When the units close in December 2018, it means there will be no large scale coal-fired power generation in New Zealand.

Huntly was commissioned in 1982 to run on both gas and coal. The station will continue to operate two gas-fuelled units. It's been vital to New Zealand in dry years when the hydro lakes levels were low.

Genesis Energy chairman Dame Jenny Shipley says: "New Zealand's changing electricity market has seen improvements in the management of dry year events, along with a significant decrease in coal-fired generation, and by 2018 the two coal units will no longer be required unless market conditions change significantly."

Electricity demand is flat and there is increasing use of cheaper energy sources like geothermal and wind.

Chief executive Albert Brantley says: "The development of lower cost renewable generation, principally wind and geothermal, investment in the HVDC link, and relatively flat growth in consumer and industrial demand for electricity have combined to reinforce the decision to retire the remaining Rankine units, which will deliver further operational efficiencies to Genesis Energy."

The industry's aim is to be 90 percent renewable by 2025.

Here is how the market looks right now:

There is concern in the community about the potential impact on jobs, but at this stage Genesis says no decisions have been made. More than 100 people are employed at the plant.

Huntly bought its coal from Solid Energy.

The state-owned coal producer is facing a very uncertain future. It owes more than $300 million and its bankers are considering its future.

Huntly will end its coal contract with Solid Energy in the middle of next year. Just over 80 people are employed at Solid Energy's Huntly mine.

It employs around 600 people nationally, 400 of them directly and around 200 as contractors.

More than half of Solid Energy's annual output is sold offshore. Much of it is used in steel production, and the manufacturing of carbon fibre, activated carbon and silicon metal.

Solid Energy also supplies coal for New Zealand Steel's Glenbrook Mill near Auckland. It also supplies Fonterra, cement makers, the timber industry and meat processors.

The New Zealand dollar has made gains overnight.

It is trading at 65.55 US cents and 89.20 Australian cents.

The kiwi is up over 1 percent against the British pound, at 42.24 pence, after the Bank of England said its benchmark interest rate would remain on hold, at 0.5 percent.

The kiwi is trading at81.71 yen and 59.96 euro cents.

Fonterra's forecast payout announcement today will be a big driver for the dollar.

The markets are expecting something around $4.00 per kilogram of milk solids (down from the current forecast of $5.25).

Analysts say if the new forecast figure were much above that level the kiwi could rally. But if it is below $4.00 the kiwi could fall below 65 US cents.

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