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ANZ Commodity Price Index: Sky high

Fuseworks Media
Fuseworks Media

The ANZ World Commodity Price Index lifted 6.1% m/m in March to reach a record high.

In local currency terms the index gained 7.4% m/m to also reach a record high, supported by a 0.4% reduction in the Trade Weighted Index (TWI).

ANZ Agri Economist Susan Kilsby said "The strength in the index was driven primarily by the sharp lift in dairy prices."

"Dairy prices are currently being supported by strong global demand, combined with a steady milk supply in the main dairy-exporting nations."

Global shipping costs continue to trend higher, meaning a smaller portion of the overseas returns is making it back to our local producers. The Baltic Dry Index - a lead indicator of economic activity - lifted a whopping 25% during March. Container shortages are really starting to bite, with NZ exporters finding it increasingly difficult to source containers and secure space on ships. Delays at various ports loading and unloading ships are causing havoc with shipping schedules, and resulting in ships skipping some ports to make up time. Shipping issues are expected to plague global trade for many months to come.

Dairy prices lifted 12.7% in March, to reach the highest level in 7 years. Whole milk powder is now 43% higher than a year ago and strong gains were also recorded for skim milk powder and butter. On the other hand, cheese prices are very similar to a year ago. Cheese is not included in Fonterra’s farmgate milk price calculation, which is heavily weighted to milk powders.

The meat and fibre index lifted 1.1% in March and is now 5.9% higher than a year ago. Beef prices eased marginally in March but this sector is still up 17% y/y. Lamb prices lifted 1.6%, and the sector is hopeful prices will continue to firm as restaurants gradually reopen in our main European and US markets. Lamb is a traditional dish for Easter consumption in the UK. Wool prices lifted sharply in March, gaining 9.9%. The industry still has a long way to go to recover fully, with shearing costs still considerably higher than the value received for the wool shorn on many farms.

The horticulture index is unchanged, as prices for new season produce are yet to flow through. Ships laden with early-season kiwifruit have already left New Zealand and will be on the shelves in Asian markets very soon. A record crop of kiwifruit is expected this season but it will be logistically challenging to find sufficient staff to pick the fruit at the optimal time. The apple industry is also facing similar issues due to the limited availability of foreign workers and insufficient local labour to meet the seasonal demand.

The forestry index gained 1.9% in March. Log prices are now the highest since May 2014, having lifted 25% in the past year. Unfortunately, the high cost of shipping is presently offsetting much of the recent price gains. Demand for higher-grade logs used domestically is also strong due to the construction boom. The availability of timber in some parts of New Zealand is tight, as sawmills continue to close due to a lack of profitability.

Aluminium prices have firmed for the past couple of months, gaining 5.6% in March. Aluminium is now worth 35% more than a year ago. Tightening supply in China, due to shutdowns of plants for environmental reasons, has bolstered pricing. Demand for aluminium is expected to rise significantly this year.

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