NZ commodity prices at 17-month high as dairy rallies

Wednesday 5th October 2016

New Zealand commodity prices rose for a fifth month in September, driven by dairy, although the strong kiwi dollar limited the benefits for local producers.

The ANZ commodity price index increased 5.1 percent last month, bringing it to a 17-month high. In New Zealand dollar terms, prices rose 3.9 percent in the month and are 5 percent lower than in the same period last year.

The release of the commodity price index follows the results of the latest GlobalDairyTrade auction this morning, where dairy prices posted their first fall since July. The GDT price index fell 3.0 percent to US$2,880, while the price of whole milk powder, the biggest product New Zealand sells by volume, dropped 3.8 percent to US$2,681 a tonne.

Dairy price gains dragged the index higher in September, up 15 percent in the month, led by butter which increased 24 percent and skim milk powder, up 16 percent.

"A cooling down period for dairy prices looks likely as buyers await further information on supply dynamics and the Chinese FTA window closes," agri economist Con Williams said in his report. "However, we continue to believe that the rally in prices has more durability than recent years. Milk supply is actually contracting in all major export markets bar the US; very tight New Zealand inventory levels are pushing demand onto the GDT platform; and recent demand at higher prices is more broadly based than China alone."

Ten of the 12 non-dairy categories monitored saw prices decline in the month, with lamb and kiwifruit the only two to gain. The largest price declines were for apples, down 5.5 percent, wool, which dropped 5.1 percent, and beef, which fell 4.6 percent.

"Improved lamb returns are due largely to very low supply at present, which is helping support frozen product prices. However, farm-gate lamb returns remain challenged by Brexit issues and the resulting sharp appreciation in the NZD/GBP (+35 percent year on year)," Williams said.

BusinessDesk.co.nz

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