ANZ Commodity Price Index

Wednesday 14 Feb 2018

The ANZ Commodity Price Index rose 0.7% m/m in January, a welcome change in direction following a 3-month slide.1 The lift was broad-based with meat, dairy, forestry and aluminium prices all lifting; the only fall was seen in milkfat products. The NZD continued to squeeze higher against major trading partners in January (NZD TWI up 1.8% m/m), pushing the NZD commodity price index down 2.9% m/m. Only aluminium prices managed to increase in local currency terms.

There were contrasting moves in dairy prices in January. Milk powder prices rose with WMP (+5.1% m/m) leading the charge, followed by SMP (+3.2% m/m). The main driver was dry conditions slowing NZ milk supply. However, the drop in the USD and dip in prices during December supported demand from more price-sensitive markets too. In contrast there was a fall in butter (-5.6% m/m), cheese (-5.0% m/m) and casein (-3.5% m/m). This was due largely to increased European and US milk flow, in the case of butter, lower seasonal demand, and building cheese stocks.

There was some small upward movement in meat and fibre prices in January (+0.6% m/m). Lamb and venison prices held at recent historical highs. Australasian sheepmeat supply has remained tight. Locally early January rainfall tightened North Island lamb supply, driving procurement pressure to meet chilled demand for the Easter period. Farm- gate pricing will moderate in February/March as local supply picks up and this season’s speciality occasion window shuts. However, a lower NZD/Euro/GBP, low frozen inventories and solid demand should provide a cushion of support. Beef prices improved on the back of tight local supply and good inter-market competition between the US and major Asian markets. Coarse-breed wool prices continue to struggle at low levels as seasonal supply increases (+0.8% m/m).

Seafood prices were stable. Horticultural products are in hibernation for the off- season.

Forestry prices maintained positive momentum. Log export prices rose another 2% m/m with solid offtake in China (i.e. high end-demand) and seasonally low inventories. Wood pulp prices rose a further 1% m/m after a stellar year, which saw prices rise 45% y/y. Momentum is slowing due to normal seasonal slowdown in China, which will see the global market rebalance somewhat. That said, producer inventories remain seasonally tight.

Aluminium prices rose 6.2% m/m as production outside of China flat- lined and demand was solid with a synchronised uplift in global manufacturing activity taking place. This led to a drawdown in global inventory levels, supporting prices. Uncertainty around Chinese production due to forced local capacity cuts on the back of environmental concerns makes for a cloudy future where price volatility is the likely outcome.

Source: ANZ

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