Commodity prices fall further in August

Meat prices had another rough month, with prices falling 3.2% month on month.

New Zealand commodity prices fell further in August as meat prices dropped and dairy prices largely traded sideways.

The ANZ Commodity Price index slipped to 293.2 from 295.7 in July, down 0.8% on the month but up 16.3% on the year. In New Zealand dollar terms, the index was at 211.2, up 0.2% on the month and up 15.8% on the year as "the dip in the New Zealand dollar against most major peers during August helped buffer local returns," ANZ Bank agri economist Con Williams said.

Meat prices had another rough month, with prices falling 3.2% month on month. Higher US domestic production, reduced retail promotional activity and a passing of the seasonal demand peak have been the main drivers of lower beef prices. Lamb prices – down 0.7% month-on-month – were "more resilient" and sheepmeat prices continue to be supported by low seasonal supply and inventory levels and New Zealand dollar prices are receiving an additional boost from a lower New Zealand dollar against the euro and British pound, Mr Williams said.

Dairy prices slipped 0.4% in August, with whole milk powder up 0.3% but skim milk powder down 5.2%, partly due to high Northern Hemisphere stocks, and processors in these regions continuing to favour a SMP/milkfat mix because of high milkfat prices, Mr Williams said.

Seafood prices were unchanged and horticulture prices fell 1.7% on the month while the forestry group increased 0.7% as log prices continue to be supported by Chinese demand, with port-level inventory and offtake continuing to track favourably. Wood pulp fell 1.3% as Chinese demand for softwood products eased.

Aluminium prices lifted 6.2 on the month as the "aluminium market is clouded by uncertainty as China enforces environmental and regulatory changes and clamps down on illegal capacity. As a result, Chinese stocks and prices lifted amidst pending production cuts," Williams said.

Overall, Williams expects still-elevated world and NZ dollar commodity prices to "provide a strong boost to rural incomes in 2018, which will diffuse through the broader economy." With the construction sector facing capacity constraints and not providing further impetus to growth (though operating at a high level), economic stimulus will have to come from elsewhere, and high commodity prices is one of those areas, he said.