NZ commodity prices fall further in August says ANZ

Tuesday 5th September 2017

New Zealand commodity prices fell further in August as meat prices dropped and dairy prices largely traded sideways.

The ANZ Commodity Price index slipped to 293.2 from 295.7 in July, down 0.8 percent on the month but up 16.3 percent on the year. In New Zealand dollar terms, the index was at 211.2, up 0.2 percent on the month and up 15.8 percent on the year as "the dip in the NZD against most major peers during August helped buffer local returns," said ANZ Bank agri economist Con Williams.

Meat prices had another rough month, with prices falling 3.2 percent month-on-month. Higher US domestic production, reduced retail promotional activity and a passing of the seasonal demand peak have been the main drivers of lower beef prices. Lamb prices - down 0.7 percent month-on-month - were "more resilient", and sheepmeat prices continue to be supported by low seasonal supply and inventory levels and New Zealand dollar prices are receiving an additional boost from a lower NZ dollar against the euro and British pound, Williams said.

Dairy prices slipped 0.4 percent in August, with whole milk powder up 0.3 percent but skim milk powder down 5.2 percent, partly due to high Northern Hemisphere stocks, and processors in these regions continuing to favour a SMP/milkfat mix because of high milkfat prices, Williams said.

Seafood prices were unchanged and horticulture prices fell 1.7 percent on the month while the forestry group increased 0.7 percent as log prices continue to be supported by Chinese demand, with port-level inventory and offtake continuing to track favorably. Wood pulp fell 1.3 percent as Chinese demand for softwood products eased.

Aluminium prices lifted 6.2 on the month as the "aluminium market is clouded by uncertainty as China enforces environmental and regulatory changes and clamps down on illegal capacity. As a result, Chinese stocks and prices lifted amidst pending production cuts," Williams said.

Overall, Williams expects still-elevated world and NZD commodity prices to "provide a strong boost to rural incomes in 2018, which will diffuse through the broader economy." With the construction sector facing capacity constraints and not providing further impetus to growth (though operating at a high level), economic stimulus will have to come from elsewhere, and high commodity prices is one of those areas, he said.

(BusinessDesk)

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