ANZ Commodity Price Index

Wednesday 8 Nov 2017

The ANZ Commodity Price Index dipped 0.3% m/m in October (+10% y/y). The fall was largely attributable to the dairy group, where all components fell. All other major groups lifted, although there were differences at the subcomponent level. Most local exporters received a further boost as the NZD continued its descent. The NZD price index was up 2.5% m/m (14% y/y) as the NZD TWI fell to its lowest level in over a year.

Dairy prices were 3.1% m/m softer courtesy of rising milk supply in the US and Europe. Butter prices fell 6.5% as the supply-demand balance improved in Europe. Higher farm-gate prices and better weather conditions are now incentivising more milk in Europe. Combined with low seasonal demand post November and higher retail prices moderating consumption, this has seen butter prices come off record highs. Skim milk powder prices have been pressured by similar dynamics, as well as Europe’s intervention scheme closing in September and uncertainty on its future settings during next year’s seasonal peak. Whole milk powder prices slipped 2.8% despite a slow start to milk supply for NZ’s new season. Chinese demand has been solid, but not spectacular, for the free-trade window. To absorb higher seasonal supplies the slack has been taken up by Middle East and South-East Asian buyers, but their price point has been lower than Chinese buyers.

Meat and fibre prices eked out a 0.8% m/m increase. Beef prices performed better than expected through October, lifting 1.7%. Prices are being supported by tight Oceania and US supply, and good US retail and foodservice demand, given solid economic conditions. Seasonally higher supply from NZ and US cull cows from late October is expected to see prices ease into year-end. Lamb prices have been supported by low NZ supplies and robust demand from the main markets. There has been the usual lift in demand for chilled product for the EU/UK Christmas period. Chinese demand for the New Year celebration period has also been very strong, supporting both mutton and lamb prices. While seasonal supply from NZ is set to increase, the outlook remains buoyant into early 2018 with low frozen inventory levels and a solid demand backdrop expected to offset higher new- season supplies. Wool prices dropped again in October, down 7% as short- term buying interest from China reduced. Stocks remain high and solid seasonal supply will limit a sustainable recovery in prices.

Horticulture prices lifted 2.8% m/m. Higher prices for large kiwifruit sizes and a product mix that includes more of the premium gold variety underpinned the rise. Seafood prices lifted 0.4% m/m.

A lift in log and wood pulp prices pushed the forestry group up 1.9% m/m. Log export values underpin the market, as domestic processors must match overseas competitors. Domestic log values were stable through September and October, and anecdotal information to date indicates Q4 contracts were either unchanged, or marginally firmer than in Q3. The export market remains solid with Chinese offtake at the port-level preventing rising inventory levels. South Korean and Indian demand are both steady too. Wood pulp surged 8% on low inventories and strong Chinese demand.

Aluminium prices rose 1.9% m/m (28% y/y). Prices have surged recently as China’s aluminium production is expected to be cut by 30% as mandated cuts are put in place over the November – March winter period.

Strong NZD prices bode well for rural incomes and profitability, and this will support the economy over 2018.



Source: ANZ


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