Commodity prices level off in July, annual growth strong
New Zealand commodity prices dipped in July, with meat prices down for the first time this year, though prices across raw materials remain strong.
The ANZ Commodity Price index slipped to 295.7 from 298 in June, led lower by declines in horticulture where prices fell 5.6 percent in the month. On an annual basis, the index rose 21 percent.
A 3.4 percent drop in meat prices was lead by lamb, as new-season Northern Hemisphere production increased, while beef prices stopped rising as US production increased and the seasonal demand peak passed, ANZ Bank New Zealand agri-economist Con Williams said in his report.
"While commodity prices are showing signs of levelling out, the lift from a year ago is still stark and this will support national incomes," Williams said. "With the construction sector still booming, but not incrementally adding more to growth as capacity constraints bite, buoyant commodity prices will act as an important substitute in the growth stakes."
Dairy prices continued to rise, up 1.4 percent for the month, and have gained 45 percent in the year. Milkfat has been a particularly strong gainer, with butter up 5.2 percent and cheese rising 3.4 percent in the month.
"Milkfat prices have posted new records in recent months with insatiable demand in developed markets and softer European milk supply limiting their export volumes," Williams said. "Seasonality has ensured tight Australasian supply too and Asian demand from a range of sources (especially foodservice/bakery) has driven tradable milkfat prices to new highs."
The New Zealand dollar index, which adjusts for currency movements, dropped 2.1 percent to 210.8 in the month though it was up 18 percent from a year earlier.
Forestry increased 1 percent in the month, though there were offsetting movements at the sub-component level, with log prices up 2.2 percent in July while wood pulp prices fell 1.9 percent.
"Log prices continue to be supported by Chinese demand with port-level inventory and offtake continuing to track favourably," Williams said. "The Chinese government has also announced lower import tariffs on logs in a bid to curb the use of logs from their own native forests. Local demand has experienced the usual seasonal slowdown, but unpruned demand for structural timber and posts/poles remains strong."
Aluminium prices increased 1.2 percent in July as markets remained focused on China's closure of spare capacity, while seafood was stable, with prices up 0.2 percent, led by salmon.